4th PSE Merchant Acquiring Conferencepseconsulting.com/wp-content/uploads/2014/01/mac14_private_equi… · 4th PSE Merchant Acquiring Conference . 2 Introduction Corestar Partners

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Private Equity & Acquiring: Why are they so interested?

Milan Bartik, Managing Partner, Corestar Partners GmbH London, 27th November 2014

4th PSE Merchant Acquiring Conference

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Introduction Corestar Partners Team

Milan Bartik

Managing Partner

M +41 79 949 42 76 E [email protected]

� Over 16 years experience in Corporate Finance/

Investment Banking with Corestar Partners, NIBC Bank, Deutsche Bank and Arthur Andersen

� Before founding Corestar Partners, Milan served as Head of Financial Sponsors Group and Payment Services for NIBC Bank, where he covered European Payment companies and Financial Sponsors

� He advised numerous Corporate and Financial Sponsors clients on strategic assignments in the payment industry

� Recent mandates include amongst others Euroline, Sofort, Skrill, Point, Wirecard, Skrill, Montrada, Hi-media, Loyalty Partner, RBS worldpay, Ogone, Global Collect, Easycash

� Master of Science in Finance from University of Leicester, UK

Dr. Clemens Hisch

Partner

M +41 79 574 6340 E [email protected]

� Over 9 years of experience in Investment

Banking/Mergers & Acquisitions with Corestar Partners, NIBC Bank, Jefferies and UniCredit

� Before co-founding Corestar Partners, Clemens covered mid cap financial sponsors / venture funds and launched the venture capital advisory business for NIBC Bank

� He advised numerous Corporate and Financial Sponsors clients on various buy-/sell-side M&A and capital raising mandates

� Recent mandates include amongst others Euroline, Sofort, Skrill, Paylife, Point, Prosol Invest, Point, Constantia Privatbank, Constantia Packaging and Card Complete

� PhD and Masters Degree in International Business Administration from Vienna University of Economics and Business, Vienna, Austria

Headquarters: Corestar Partners GmbH Bahnhofplatz 6300 Zug Switzerland German Office: Corestar Partners GmbH Kettenhofweg 73 60325 Frankfurt am Main Germany

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Agenda

I. Introduction

II. Key Attributes

III. Exit Options

IV.Conclusions

V. Appendix

a. Underlying Market Dynamics

b. Introduction to Corestar Parntners

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I. Introduction

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Private Equity & Acquiring…

non-exhaustive

Selected Private Equity Backed Transactions in the Acquiring / Payment Services Space

Sponsor

Target Company

Date Nov-06 May-10

Sources: Company Information, CapitalIQ, Corestar research and analysis

Oct-14 Dec-12 May-14 Apr-10 Jul-07 Apr-10 Aug-13 Aug-10 Mar-14

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� Merchant acquiring businesses generally have …

– Solid underlying performance

– Proven resilience in recent crises

– High levels of cash conversion

– Diversified and sticky customer base…

…Why are they so interested?

� …Offering Private Equity Investors

– Platforms for future growth, both organically, as well as via

– M&A driven growth strategies

– Operational improvement

– Full range of exit options

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II. Key Attributes

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Solid underlying performance

� Global non-cash payments (cards, direct debits, credit transfers and checks) continue to grow at high single digit rates (7.9% CAGR 07-13)

� Emerging markets driving growth with a CAGR (07-13) of 19.6%, while mature markets grow at a CAGR (07-13) of close to 5%

� Europe growing faster than North America, at a CAGR (07-13) of 4.5% compared to 3.8%

Development of Number of Worldwide Non-cash Transactions (Billion) by Region

Sources: Capital IQ, Central Banks Annual Reports, World Payment Report 2010&2014, Corestar research and analysis Note: Europe incl. Slovakia and Switzerland; CEMEA incl. Central Europe, Middle East, Africa Hungary, Romania and Czech Republic; Asia Pacific (mature) incl. Japan, Australia, South Korea and Singapore

250 269

286 310

334 366

CAGR (07-13)

3.8%

7.9%

4.5%

11.0%

13.6%

28.7% 19.8%

Emerging: 19.6%

Mature: 4.9%

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Key growth drivers:

� Increasing consumer spending

� Increasing use of non-cash payment instruments

� Growth of e-/m-commerce

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Proven resilience in recent crises

� Development of underlying metrics in the payment service industry crisis resilient

� ~4% annual non-cash volume growth even in Europe during last crisis, while GDP declined by >5% in 2009

Payment Volume Growth vs. GDP Growth (2008-2013)

Sources: Capital IQ, Central Banks Annual Reports, World Payment Report 2010&2014, Statista, Corestar research and analysis

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High levels of cash conversion

On average payment companies generate 20% more cash than the S&P 500 index

Cash Flow Conversion: Payment Services Companies vs. S&P 500

Sources: Capital IQ, Corestar research and analysis Note: Data based on CY2013 except for not disclosed Online Payment Processor (CY2010)

� Definition: 𝐶𝑎𝑠ℎ 𝐶𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛 =

� Highly important for financial sponsors:

– Implies a lean business model with low CapEx requirements

– Allows fast repayment of acquisition debt

– In turn allows sponsors to leverage payment assets and pay competitive prices

Acquirer Acquirer / Processor

Median Payments

Processors/ Acquirers

S&P 500 Index

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Ability to further expand businesses

Private Equity investors generate value by

Top line growth � Organically: Regional expansion, product development, cross selling � Acquisitive: Add-on acquisitions

Optimising profitability

� Reducing costs through efficiency improvements � Capturing synergies within organizations

Deleveraging

Multiple Expansion Fi

nanc

ial E

ngin

eeri

ng

Busi

ness

Dri

ven

� Achieve higher exit multiple than entry multiple � Reasons: More attractive business at exit (larger size, higher

growth, higher profitability)

� Pay-off of acquisition debt with cash flow � Increase equity value

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III. Exit Options

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Full range of exit options

� Private equity investors are exit driven investors, as their return on investment is primarily driven by exit proceeds

� Availability of multiple exit / value creation options is a key investment criterion

� Typically, there are four ways for private equity investors to monetise an investment

� Examples: � Sale of TNS to DataCash/MasterCard by Siris in Nov. 2014 � Sale of Global Collect to Ingenico by Welsh, Carson in Oct. 2014 � Sale of Ogone to Ingenico by Summit Partners in Jan. 2013

� Leveraged recapitalisation � Usually done once initial acquisition debt has been paid down substantially

� Equity offering � Examples: � Evertec

Trade sale

Secondary / tertiary buyout

Refinancing

IPO

� Sale to (another) financial sponsor � Examples: � Sale of Global Collect to Welsh, Carson by General Atlantic in Apr. 2010 � Sale of Global Collect to General Atlantic by Waterland in Jul. 2007

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Trade sale

Sources: Company Information, Corestar research and analysis

Payment Services Industry Consolidation The recent consolidation has moved the payment processors and acquirers closer to the merchant (i.e. “own the merchant”)

Current focus is to have a multi-service offering including online and alternative payment solutions

Issuer Issuer /

Processor Network

Acquirer / Processor

Point of Sale & Gateways

Merchant Strategic Rationale

�Get direct access to merchants in order offer “one-stop-shop solution”

�Drive growth of e-/m-commerce together with acquirer relationships

� Expand and enhance existing solutions to provide merchants with new market reach / service offerings

� Leverage network and global presence to expand adoption of new products and services

�Combine fraud capabilities and expertise resulting in “end-to-end” fraud screening and management services

�Deliver new generation of e-/m-commerce Jun-08

Sep-10

Apr-10

Jan-11

Nov-09

Sep-09

Nov-11

Sep-10

non-exhaustive

Jan-13

Sep-14

Oct-14

Jan-13

Nov-14

Oct-10

Nov-14

Aug-14

May-14

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IPOs

� IPO pipeline for payment assets is full

� Rumoured IPOs in the industry include:

Attractive exiit option

Recent IPOs of payment assets

IPO pipeline

� IPOs are a viable exit option for payment assets

� Payment assets to date have yielded a very attractive trading performance

� Multiples achieved in IPOs can be very attractive

� Recent IPOs:

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0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Apr-2012 Jul-2012 Oct-2012 Jan-2013 Apr-2013 Jul-2013 Oct-2013 Jan-2014 Apr-2014 Jul-2014 Oct-2014

Evertec Vantiv Worldline Ozforex Safecharge

IPOs: Performance of Selected Payment Assets

Stock Market Performance of Selected Payment Processors / Acquirers

� Recent IPOs in payment services show an attractive performance

� To date, average performance of recent payment processing / acquiring IPOs of +22%

Average performance since listing: +22%

Sources: Capital IQ, Corestar research and analysis

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IV. Conclusions

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Conclusions – Payment is not cheap!

� Merchant acquiring as well as the broader payment services sector continues to be of high interest to financial sponsors

� Payment assets tick all boxes of typical financial sponsors’ investment criteria:

– Attractive growth outlook

– High cash conversion

– Diversified and sticky customer base

– Full range of exit options

� However, due to the complex nature o f the payment ecosystem, it is hard for sponsors lacking sound payment expertise to win auctions of strategic assets against strategics and sponsors with proven track record

� Prices are very high, reflecting the infrastructure-like nature of the assets

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Valuation multiples of recent transactions

EV/EBITDA Multiple Ranges for Different Sub-Segments of the Payment Industry

Sources: Company Information, Capital IQ, Corestar Analysis Note: LTM multiples; Ranges indicate 1st and 3rd quartile of respective transactions; Selected transactions from 2006 to date

10.0x 8.4x

13.0x 12.2x 15.6x

6.6x

11.3x

15.7x 14.9x 15.7x

28.5x

12.2x

0x

5x

10x

15x

20x

25x

30x

35x

Acquring /Processing

IT/BPO Hardware SaasS Online Pre-paid

2.2x

1.2x 1.3x

2.2x

3.4x

1.7x

2.7x 2.4x

4.1x

3.1x

6.6x 6.2x

0x

1x

2x

3x

4x

5x

6x

7x

Acquring / Processing IT/BPO Hardware SaasS Online Pre-paid

EV/Sales Multiple Ranges for Different Sub-Segments of the Payment Industry

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Thank you for your attention!

Q&A

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V. Appendix

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a. Underlying Market Dynamics

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Underlying Market Dynamics

� Card usage still strongest growth driver of non-cash payments in mature markets, constituting over 60% of global non-cash payments in 2012

� North America and Europe contributed to almost 61% of global card transactions

Credit and debit cards, as well as credit transfers key growth drivers of global non-cash transaction volumes

Development of Payment Methods (Billion Transactions) by Region

Sources: Capital IQ, Central Banks Annual Reports, World Payment Report 2014, Corestar research and analysis Note: Europe incl. Slovakia and Switzerland; CEMEA incl. Central Europe, Middle East, Africa Hungary, Romania and Czech Republic; Asia Pacific (mature) incl. Japan, Australia, South Korea and Singapore

CAGR (08-13)

28 35 39 64

81 90

13 21 27 8 15 24

8 13 18 7 16 26

20 22 24

12

14 15

2 2

3

1 4 5 0

1 1

20 22

24 8

9 11

5 6

7

8 10

12

4 7

8

6 4

5 27

21 20

74 84

91

111 124

134

22 30

38

12 20

30 19

29 37

12 23

36

0

20

40

60

80

100

120

140

2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012

Europe North America Asia Pacific (mature) Emerging Asia Latin America CEMEA

Cards Direct Debits Credit Transfers Checks

4.8% (6.8%) 8.4% 4.8% 8.7%

32.7% 23.5% 19.5% 57.8% 27.7%

18.0% (2.8%) 11.6% 52.6% 22.6%

25.8% 4.4% 30.1% 13.7% 30.5%

14.3% (10.6%)

8.9% 7.3% 19.2%

5.4% (6.3%) 4.4% 4.4% 8.7%

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b. Introduction to Corestar Parntners

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Corestar Partners About Us

Corestar Partners is an independent investment banking boutique focused on the Payment Service Industry

Overview of Corestar Partners

� Corestar Partners (“CP”, “Corestar”) is a corporate finance boutique focused on the Payment Service Industry

� The company has locations in Zug, Switzerland and Frankfurt, Germany, and provides Corporate Finance advisory services with a focus on Mergers & Acquisitions and Private Equity/ Venture Capital Placements

� CP was founded in 2013 to provide high quality independent advice, based on deep industry expertise combined with strong execution skills, to Payment Service Companies and Investors

� The exclusive focus on the Payment Service Sector provides CP with an unique knowledge and experience of companies, investors and transactions within this industry

� This positioning combined with the team’s track record of executing deals in the Payment Service Industry endows CP to serve payment companies with national and international growth ambitions

� As an independent advisory boutique with no banking or brokerage operations, Corestar Partners is free of conflict of interests and fully focused on optimizing its clients’ processes and results

Team

� Corestar’s team has worked together at NIBC Bank and has built up and established the payment service sector for the Bank in Europe

� It has made it one of the most successful sectors in recent years for the Bank

� As Head of Financial Sponsors Group and Payment Services, Milan has been covering European Payment Service companies and Private Equity/ Venture Capital investors

� Mandates range from M&A advisory, capital raising to debt advice and financing

� To date, the team has advised on and/or financed numerous mandates in the Payment Service Industry, most recent mandates include:

– Nordic Capital/Euroline

– nets

– Klarna/Sofort AG

– Skrill/ moneybookers

– Wirecard

– Ogone

– Point

– etc.

� Through its long-lasting activity in advising and financing of Payment companies, the team has built up an outstanding international network of financial and strategic investors as well as entrepreneurs and founders

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Why Corestar Partners Key Strengths

Strong Sector Know-How

� Sole focus on Payment Service companies, covering more than 10 sub-sectors in this highly complex industry

� Intimate knowledge of international Payment Service sector dynamics and strategic thinking of key players in the industry

� Dedicated experts in Mergers & Acquisitions, capital raising and debt advisory

� Personal relationship with all relevant Financial Sponsors focusing on the Payment Service sector

Unmatched Industry Network

Proven Team’s Track Record Highly Committed

� Corestar’s team together with it’s senior advisors is globally very well connected within the Payment Service Sector and has direct access to almost all key players in the industry

� Personal network ranges from the big payment schemes over the traditional payment companies, to the ‘new’ alternative payment companies

� Close relationships with and knowledge of potential buyers/ investors’ key decision makers

� Well positioned to judge strategic agendas and true sector appetite of sponsors

� Strong track record of successfully executed, complex M&A advisory and debt financing transactions

� Demonstrated experience in payment service sector with successfully executed as well as financing transactions

� Extensive track record in advising financial sponsor community

� The team is highly experienced in managing high paced, competitive projects and processes

� Full dedication of attention and resources to deliver top quality results to each of our clients, in any situation

� Offering highly personalised advise that goes beyond any specific transaction

� Committed to further build and solidify existing relationship within the industry

� Success-based compensation structures align interests of clients and Corestar Partners, and demonstrate conviction to deliver top results

Corestar Partners offers its clients a highly tailored advise based on a strong industry expertise combined with bulge bracket investment banking competence

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Unmatched Network within the Payment Services Industry

payment schemes

e-payment

payment hardware

innovators

pre-paid payment Corestar maintains close and direct dialogue with management of all major players within the payment services industry, ensuring to be at the forefront of developments and innovations At the same time, Corestar’s network covers payment experienced financial sponsors, amongst others

payment processing

Non-exhaustive

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Team’s Payment Track-Record

Numerous Mandates in the Payment Services Industry

Outcome Target Description Situation Role

not disclosed � Ongoing � Debt portfolio of

payment services company

� Divestment of a sizeable debt portfolio of a payment services company

� Advisor to the company

� Closed � Payment services

provider in the Nordics � One-on-one situation to provide exit opportunity for the

shareholders � Advisor to

financial sponsor not disclosed

� Nets acquired by Bain Capital, ATP & Advent International

� Supplier of payment services in Northern Europe

� Formal auction process in which various financial sponsors and strategic buyers were invited to provide exit opportunity for the shareholders

� Advisor to financial sponsors (undisclosed)

� Signed � Supplier of payment

services in Northern Europe


� Advisor to Nordic Capital

� Closed � Virtual currency payment

processor � Strategic advisory and equity capital raising for a leading virtual

currency payment processor � Advisor to the

founder not disclosed

� Ongoing � Austria based alternative

payment services provider

� One-on-one situation to provide exit opportunity for the current shareholders

� Advisor to strategic investor not disclosed

� Ongoing � UK based online payment

services provider


� Advisor to strategic investor not disclosed

not disclosed � Ongoing � Online payment services

company � Equity capital raising for a leading online payment services

company � Advisor to the

company

not disclosed � Signed � e-invoicing solutions

company � Equity capital raising for a leading e-invoicing solutions company

in Europe � Advisor to the

founders

� Closed � Payment services

provider in Asia-Pacific


� Advisor to financial sponsor not disclosed

� Closed � Provider of online

banking e-payment solutions

� Formal auction process in which various financial sponsors and strategic buyers were invited to provide exit opportunity for Reimann Investors

� Advisor to Klarna AB

� Closed � Provider of invoice based

e-payment solutions � Equity capital raising process for Klarna AB in connection with

the acquisition of SOFORT AG � Advisor to Klarna

AB

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� Closed � Belgian online payment

services provider � Ogone targeting India-based payment services provider; fairness

opinion provided to board and management of Ogone � Advisor to Ogone

� Closed � Provider of electronic

payment and risk management solutions

� Wirecard performed two small acquisitions and needed acquisition financing

� Lead arranger

� Closed � Provider of online

payment solutions � Skrill evaluated several payment company targets in Europe and

the US; therefore it needed an acquisition facility � Mandated lead

arranger

� Point acquired by American strategic buyer VeriFone

� Supplier of payment solutions in Northern Europe

� Formal auction process in which various financial sponsors and strategic buyers were invited to provide exit opportunity for Nordic Capital

� Advisor to financial sponsors (undisclosed)


� PayLife acquired by SIX Group

� Advisor to financial sponsor (undisclosed)

� Austrian credit and debit card issuer and acquirer

� Formal auction process in which both strategic and financial sponsors were invited to provide exit opportunity for shareholding banks

� Sale process pulled because price expectations could not be met

� French provider of payment solutions for micropayment applications

� Formal auction process in which various financial sponsors and strategic players are invited to consider the potential acquisition of Hi-media’s payment division

� Advisor to Hi-media

not disclosed � On hold � Payment services

company

� One-to-one discussions between European and US-based payment services companies

� Advisor to the US party (undisclosed)

� Skrill acquired by financial sponsor CVC

� Provider of online payment solutions

� Formal auction process in which various financial sponsors and strategic buyers were invited to provide exit opportunity for Investcorp


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� Montrada acquired by Equens

� German provider of card based payment solutions

� Very focused auction process with respect to a potential exit of Commerzbank AG

� Advisor to potential trade buyer (undiscl.)

� RBS Worldpay acquired by Advent and Bain

� UK based provider of POS and online payment solutions

� Formal auction process in which various financial sponsors and strategic buyers were invited in order to provide exit opportunity for Royal Bank of Scotland


� Ogone acquired by Summit Partners

� Belgian online payment services provider

� Formal auction process in which various financial sponsors and strategic buyers were invited in order to provide exit opportunity for Ogone’s founders

� Advisor to Summit Partners

� Global Collect acquired by Welsh, Carson, Anderson & Stowe

� Dutch payment services provider

� Formal auction process in which various financial sponsors and strategic buyers were invited in order to provide exit opportunity for GC’s management team and General Atlantic

� Mandated lead arranger

� Easycash acquired by French strategic buyer Ingenico

� German provider of card based payment solutions

� Formal auction process in which both strategic and financial sponsors were invited to provide exit opportunity for Warburg Pincus

� Advisor to Nordic Capital/ Point


� Closed � Supplier of payment

solutions in Northern Europe

� Fairness opinion provided to majority shareholder of Point � Advisor to

majority shareholder

� Sale process pulled � Austrian credit and debit

card issuer and acquirer

� Formal auction process in which both strategic and financial sponsors were invited to provide exit opportunity for shareholding banks

� Advisor to the selling shareholders

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The information given is confidential and is not to be circulated to any person or entity without the consent of Corestar Partners (“CP”, “Corestar”). The information and opinions presented here have been obtained or derived from sources believed by CP to be reliable at the date of publication of this report. No representations are made as to their accuracy or completeness and they are subject to change without notice. CP accepts no liability for loss arising from the use of the figures presented. This material is not to be relied upon in substitution for the exercise of independent judgement.

Strictly Private and Confidential

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4th PSE Merchant Acquiring Conferencepseconsulting.com/wp-content/uploads/2014/01/mac14_private_equi… · 4th PSE Merchant Acquiring Conference . 2 Introduction Corestar Partners