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Confirming rumors that have been rife for days, merchant acquirer Global Payments Inc. announced late Tuesday that it will buy smaller rival Heartland Payment Systems Inc. in a cash-and-stock deal valued at $4.3 billion.
At $100 per share, the deal represents an 18% premium over Heartland’s closing share price Tuesday. Atlanta-based Global Payments will pay $53.28 in cash and provide 0.6687 shares of Global stock for each Heartland share. Global also will assume about $500 million in Heartland debt.
The companies expect the deal to close in the fourth quarter of Global’s fiscal 2016, which ends May 31, at which time Global’s shareholders will own 84% of the combined company. Each company’s board of directors has approved the deal, which still needs the okay from Heartland’s shareholders as well as regulatory approvals.
Global Payments operates in 29 countries, is a leading acquirer in the U.S., and has a big presence in Canada. The company is big in so-called integrated payments, in which it strikes partnerships with software developers and value-added resellers to offer business-management services and payments to merchants. Princeton, N.J.-based Heartland, in contrast to most of its rivals, relies entirely on an in-house sales force to book merchants. It has a big portfolio of small merchants as well as large petroleum retailers. Heartland also has carved out niches with payroll processors and specialty payments providers for schools.
“This partnership with Heartland marks a major milestone for our company, significantly enhancing our direct presence in our largest market and transforming Global Payments into the leading provider of integrated-payments technology solutions in the world,” Global Payments chief executive Jeffrey S. Sloan said in a statement. “The combination of strong businesses and cultures in high-growth markets will generate exceptional opportunities for our employees, customers, partners, and shareholders worldwide.”
“The combination of Global Payments and Heartland will be transformative for the worldwide payments industry,” said Robert O. Carr, Heartland’s chairman and CEO, in a statement. “Under Jeff’s leadership, I believe the combination of our companies will become the most valuable payments company on the planet. Heartland is excited to team with a truly international company.”
Carr said that Heartland’s brand and its business model of what he called fair dealing, signified by its Merchant Bill of Rights and Sales Professional Bill of Rights, would continue.
The combined company will serve nearly 2.5 million merchants and generate net revenues of more than $3.0 billion annually, according to Global. The company’s annual earnings before interest, taxes, depreciation, and amortization are expected to be in the $1 billion range.
The Bloomberg news service first reported last week that the companies were in talks about a merger. Analysts say a combination of the two big acquirers in the scale-driven processing business could reduce duplicative costs. Sloan said Global expects so-called synergies—cost cuts and revenue increases—of at least $50 million in fiscal 2017 and $125 million annual thereafter.
The Global-Heartland merger could herald a return to growth via mergers in the acquiring business following a long era in which private-equity firms have bought out payments companies, according to C. Marc Abbey, managing partner at Annapolis, Md.-based First Annapolis Consulting Inc.
“There have not been a great many consolidating transactions in the past six or eight years…so a combination of two large acquirers like this is noteworthy in that it may signal a return to an era of consolidation,” Abbey tells Digital Transactions News by email.
Abbey adds that Global and Heartland “have complementary sales channels that overlap with each other very little, actually. The two companies do a lot for each other.”
