Global Payments, Heartland Combo Would Produce an Acquirer of Wide Breadth

There have been IPOs galore in the payment industry of late and merchant acquirer TransFirst is in the dock, and the acquisitions of independent sales organizations by bigger processors continues unabated. But there hasn’t been an acquisition of a big, publicly held payment processor by another in some time. That would change, however, if rumors that Global Payments Inc. might acquire smaller rival Heartland Payment Systems Inc. prove true.

The Bloomberg news service, citing anonymous sources, on Thursday first reported talks between the companies of a possible deal. Neither firm would comment to Bloomberg, nor would they to Digital Transactions News.

Should such an acquisition occur, however, it would solidify Atlanta-based Global Payments’ position as the largest U.S.-based publicly held pure-play acquirer. Global Payments reported revenues of $2.77 billion for fiscal 2015 ended May 31, while Princeton, N.J.-based Heartland is on track to post net revenues of about $812 million in 2015, according to projections the company issued with its third-quarter earnings report.

Both companies are profitable. Global Payments reported net income of $278 million in fiscal 2015, up 13% from 2014. Heartland’s earnings for the first nine months of 2015 totaled $62 million, an increase 20% from the year-earlier period.

Each firm gets its bread-and-butter revenues from merchant acquiring, but they differ in some important ways. Heartland relies entirely on its own sales force. Global Payments, which processes about 7.2 billion transactions annually, generates transactions not only from accounts booked by its direct sales channel, but also through a number of ISOs, although it has been emphasizing its direct business of late.

Heartland, which reported processing $109.9 billion in total charge volume in 2014, focuses on two major parts of the domestic acquiring market. Its small and mid-sized merchant portfolio consisted of nearly 170,000 merchants that generated $81.1 billion in volume, according to the company’s latest annual report. Its Network Services segment, consisting of 2,181 merchants, primarily petroleum retailers, served 42,400 locations that produced $28.8 billion in volume.

Global Payments, as its name implies, has extensive international operations. The U.S. remains its biggest market, but it operates in a total of 29 countries and serves 2 million merchant locations, according to a recent investor presentation. Global Payments is a major acquirer in Canada and Europe, and is moving into the Asia-Pacific region. The company will generate about 38% of its revenues outside of the U.S. and Canada in fiscal 2016, according to the presentation.

Both firms have businesses beyond straight-up merchant processing. Global Payments has long been active in payment services for casinos and has made some major acquisitions in the hot integrated-payments space, including its $428 million buyout of Payment Processing Inc. (PayPros) in March 2014.

Heartland, meanwhile, has expanded into payroll processing and specialized payment services for schools and colleges through a series of acquisitions over the past several years.

A combination could benefit both companies, assuming Heartland shareholders get a good price, says payments-industry analyst Gil Luria, managing director at Los Angeles-based Wedbush Securities.

“Merchant processing is a scale business and it makes sense for two processors to merge in order to get to bigger scale,” Luria tells Digital Transactions News by email. “There is likely significant overlap in product development and overhead expenses that could be taken out if they merge.”

Heartland’s stock jumped Thursday on the buyout rumor to close at $84.79, up 9% from Wednesday’s close, but pulled back by 2% on Friday morning.