Nexi to Acquire Nets in Blockbuster $9.2bn Deal to Create Payment Giant

The consolidation wave in European payments continues. The digital payments sector is currently witnessing a surge in consolidations as firms race for scale, seeking to become more competitive and reduce the substantial fixed costs that arise from keeping pace with the continuous need to invest in technology. With 2 acquisitions in just 6 weeks, Nexi is no exception to this trend. One of which is the recent announcement that Italy's largest payments group, Nexi is in exclusive talks to acquire Nordic payments rival Nets.

This marks the latest example of European companies racing to consolidate in the fragmented digital payments market. Even the pandemic has done little to cool the pace of acquisitions. As depicted below, almost $32bn of transactions have been struck in the European payments industry this year, up from $8.5bn in the same period in 2019.

Source: Financial Times

Who?

Nexi

Nexi, the acquirer, is a leading PayTech firm that initially listed on Borsa Italiana’s main market (MTA) last year, which was among Europe’s biggest IPOs in 2019. Its integrated end-to-end omni-channel technology connects banks, merchants and consumers enabling digital payments.

Target: Nets

The subsequent subject of the acquisition, Nets, is an integrated pan-European PayTech player, with leadership positions in advanced digital payments markets, namely Nordics. Currently, Nets operates through two business segments: Merchant Services and Issuer & eSecurity Services, covering the full digital payments value chain from payment capture and authorization to processing, clearing and settlement. It is also worth noting that in August 2019, Nets announced the disposal of its account-to-account payment business to Mastercard for €2.85bn. This deal, which is expected to close Q1 2021, likely appealed to Nexi as it was a division that historically grew below group average and reduced net debt to €1.8bn.

The Deal

Value: €7.8bn (all-share deal)

Announced: 16 November 2020

Anticipated completion: second quarter of 2021

Financial Advisors to Nexi: Goldman Sachs, BofA, HSBC, Centerview

Financial Advisors to Nets: Credit Suisse, J.P. Morgan

Regarding the deal itself, Nexi reportedly jumped at the opportunity to acquire Nets, which arose after US group Global Payments suddenly pulled out of the race due to risk concerns related to making a cross-border acquisition among the second coronavirus wave. Nets also took advantage of the fact that rival Worldline was busy with its agreed acquisition of Ingenico, Reuters reported. If successful, the combination of both Nets and SIA would turn Nexi into Europe’s leading payments operator, with a market cap of more than €22bn.

So, why is Nexi homing in on a yet another new target just weeks after combining with local rival SIA?

Why?

Strategic Rationale:

It is initially worth looking at the rationale from an industry perspective. As briefly mentioned earlier, the digital payments market is widely regarded as a scale game. With the need for continuous investment in tech creating substantial fixed costs, coinciding with a spike in online transactions, the sector’s model has unleashed a scramble for scale. As such, the previously dormant sector has suddenly awakened with a global theme of M&A, to enable companies to efficiently and cost-effectively expand, and Nexi is seemingly one of the winners of this trend. Linked to this - Nexi was a relatively small Italian payments provider just a few years ago, but has been growing significantly, and almost exclusively through M&A, to become one of Europe’s leading payments firm by transaction volume.

Synergies:

Taking a closer look at the rationale, the combination is also expected to provide significant value creation opportunities for shareholders as it is expected that the combination will facilitate the realisation of €170m total recurring cash synergies. The majority of these synergies are expected to be realised in 2024. Breaking this down:

▪ €135m run-rate EBITDA synergies, with >80% achievable by 2024. This includes €95m cost synergies and €40m revenue synergies. Revenue synergies are predominantly achievable through eCom solutions cross-fertilization, cross-selling omni-channel and integrated collection solutions to both international and regional merchants, and finally, cross-selling of issuing solutions to international financial institutions.

▪ €35m capex synergies, achievable through scaling investments on innovation and product development, as well as investment optimization (avoiding duplication of investments).

However, the synergies don’t stop there. Nexi also mentioned that on top of this, an additional €150m recurring cash synergies is expected from its merger with SIA to create a group with total recurring cash synergies of €320m and pro-forma 2020 revenues of €2.9bn. Finally, the combined SIA merger and Nets acquisition offer Nexi enhanced growth potential and resiliency through geographic diversification and an enlarged revenue mix. As depicted below, this is expected to result in pro-forma EBITDA of €1.5bn in 2020.

Source: Financial Times

Additional rationale highlights:

Source: Nexi

Uncertainties

With Nexi stating that it expects to close the Nets and SIA deal in the second and third quarter of 2021, one key contingent to the success of the deal will be Nexi’s ability to smoothly integrate the two acquisitions simultaneously. As reported by Reuters, analysts have emphasised that Nexi may face significant obstacles in tackling this challenge and going through two major transactions in such quick succession. Jefferies highlighted that an extended timeframe to integrate Nets helps to reduce execution risks for what was “shaping up to be one of the more complex deals undertaken in European payments”. Additionally, the high debt at Nexi may add to the difficulties in dealing with both transactions in the short-term. Once the SIA and Nets deals are complete, Nexi’s Net debt to EDBITDA will approach three times. This, in combination with the stagnant revenues in the Nordic regions where Nets predominantly operates, sets the scene for a tough road ahead.

One final risk is that both transactions are subject to antitrust approval. However, this is made less significant by Nexi’s CEO, Paolo Bertoluzzo mentioning that the groups had no major overlaps.

Overall, the deal creates a more resilient Nexi with market and client diversification, scale and e-commerce exposure underlined as the key advantages.

"The merger will give birth to a European PayTech leader with reach across >25 countries, ideally positioned to provide best-in-class and future-proof innovative payment solutions for merchants and issuers across Europe." – Bo Nilsson, Nets CEO

---

Check out M&A Insight's additional coverage of Nexi's merger with SIA, just weeks before this Nets deal.