The Big-Ticket Mercury Acquisition Already Starts to Pay Dividends for Processor Vantiv

Vantiv Inc.’s $1.65 billion acquisition in May of Mercury Payment Systems LLC appears to be paying off already.

In the second quarter, Cincinnati-based Vantiv said Mercury accounted for approximately 5% of the payment processor’s net revenue growth. Vantiv’s second-quarter revenue increased 11.6% to $331.3 million from $296.9 million a year ago.

“Our expanded presence in the integrated payment channel will continue to generate future growth, Charles Drucker, president and chief executive, told analysts during a conference call Thursday. “As small and mid-sized merchants increasingly migrate from traditional terminal-based solutions towards more feature-rich integrated payment technology at the point of sale, our investment in an integrated payment channel will allow us to benefit from this trend.”

Mercury is known for its network of some 600 software developers and about 2,400 value-added resellers/dealers that integrate its payment-processing services into their applications for businesses.

Mercury has grown at a 44% compound annual growth rate since 2005, said Matt Taylor, Vantiv president of integrated payments and former Mercury chief executive.

Indeed, integrated payments is a major division within Vantiv, with Taylor overseeing Vantiv’s legacy independent software vendors business along with Element Payment Services, which focuses on security, and Mercury.

“Element brings complementary technologies from a security perspective and is really focused on different markets with very little overlap in terms of their go-to-market approach compared to Mercury's go-to-market approach,” Taylor told analysts. He expects the collective benefit, in terms of revenue growth, of the three units to accelerate in 2015.

Part of the reason for this expectation is the combination of the three businesses, he says. “And now with Vantiv, we, through the integration process, will only add to our capabilities to go out and continue to shore up our products—our product line and grab share,” Taylor said. “So I believe that we will have a better capability to defend against competition [and] grow the model than we did prior to the Vantiv acquisition.”

Other Vantiv business lines performed well, too, in the quarter.

The processor’s merchant-services revenue increased 16.5% from to $245.6 million from $210.8 million a year ago. That’s mostly because of an 18% increase in transactions. Vantiv began processing a “significant” number of transactions for Wal-Mart Stores Inc. and its Sam’s Club unit. “As the quarter moved on, we started seeing more volume coming from Walmart in the quarter,” Drucker said.

Transaction volume tends to be affected more with merchants like Walmart, Mark Heimbouch, chief financial officer, told analysts, because “very large clients like Walmart tend to be priced meaningfully lower than our average rate. But it was a significantly larger contributor to transaction growth and net- revenue growth.”

As for its independent sales organization channel, Vantiv said it continues to compete well for merchant business, but “competition is really increasing for the traditional ISO as merchants adopt integrated payments,” Drucker said. He added that Vantiv doesn’t expect much conflict supporting its integrated payments business and its ISO business. “We’ve handled that in the past between our merchant bank channels, our direct sales force, and the ISOs,” Drucker says. “And we have clear communications with our clients.”

For the quarter, Vantiv posted a net loss of $1.4 million compared with a net income of $28.9 million a year ago. Vantiv had several non-recurring charges associated with the Mercury acquisition to account for in the second quarter.