M&A in payments from the past to the future · Notes: (1) Card Payments Penetration defined as card payment transactions excluding commercial transactions divided by total consumer

M&A in payments from the past to the future

Silvano Lenoci – Partner KPMG Advisory, Co-Head of Global Financial Services M&A

–

Milan, November 8th, 2018Sala Blu 1 – 10 a.m./11 a.m.

2© 2018 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

DR

AFT

A new Ecosystem is emerging in the digital payments…. Demand for real-time, agile and more personalized payments services Strong digital experience with customer at the center Omni-channel payments (e.g., in-store terminals, web shops, any devices)

Heightened

customers

Digital Payments

Ecosystem

Rise of FinTech especially on cross-border payment and settlement solutions Incumbent players are partnering / collaborating with Fintechs (e.g., UK

and the Netherlands)

IoT (Internet of Things) and DLT (Distributed Ledger Technology) are disrupting the payments industry

AI and open APIs are catalysts for further modernization and consolidation Significant investments in blockchain (e.g., Ripple) Data analytics to improve behavioral analyses and customer experience

PSD2 favors introduction of open systems and partnership opportunities Stronger standards for anti-cyber attacks and data protection systems

(EU GDPR)

Robotic process automation, machine learning and AI to combat frauds and hacking-related breaches

Role of

FinTechs

Next-generation

technology

Regulatory

landscape

Cyber security

Source: Capgemini, KPMG research, publicly available information


The Digital payments sector is experiencing a progressive disengagement of banks from the “traditional” payments space and a growth acceleration through the digital revolution


DR

AFT

…forcing operators to adapt and evolveM&A in payments from the past to the future

1. Traditional players 2. FinTech / Digital players 3. Banking players

Traditional players are looking

for consolidation and global scale

FinTech are emerging in cross-border payments, enhancing faster, instant payments

Banks to turn into platform players,

connecting providers and end-customers, to retain payments' role

(e.g., e-commerce)

4. e-Commerce platforms

e-Commerce penetration to

increase driven by interest of traditional players in acquiring /

building platforms


DR

AFT

E-commerce is set to become the largest retail channel…M&A in payments from the past to the future

Global B2C e-Commerce sales ($ bn)

2015

$1,264

2018E

$2,062

hso2013

$8662010

$424

Global B2C e-Commerce

penetration (%)

13%

9%7%

4%

The shift to e-Commerce is becoming a significant structural driver, globally

CAGR 10-18E +22%

CAGR 13-18E +19%

CAGR 15-18E +18%

Sources: Euromonitor and analyst reports


DR

AFT

…leveraging on customer-centric solutionsM&A in payments from the past to the future

Offering direct payments, pay after

delivery and instalments plans

Increasing demand for cross-border

payment solutions due to the growing global e-commerce

market

Deep focus on online and in-store merchant

solutions

Seeking for scale in the e-commerce

arena through several acquisitions and

partnerships

Focus on next page

(partnership)


DR

AFT

Focus on Klarna: a leader in hyper-personalized payment services


– Consumers pay directly with credit or debit card

– Securely saves consumer payment information for one-click purchases in the future

– All major card brands accepted

– Personalized services to loyal shoppers

Payment

solutions

– Spread the cost of a purchase over time with low APR financing offers

– 6 to 36 month planned payment terms are available to a reduced APR rate

– Flexible month-to-month: no fixed term commitment; the client can pay the balance in full or make the minimum monthly payment

– Consumer can receive products before paying

– The client can pay up to 30 days after the purchase (Buy now Pay Later period) with card or bank account, with no added interests

Pay over time Pay now by cardPay after delivery

M&A as a catalyst for consolidation


DR

AFT

Most of the consolidation cases have been to acquire new technology…

2000 2005 2010 2016 2018

IPO (Sep.16) takeover

Processing Actvities

CEE

20172015Pan-European consolidation Regional consolidation Global consolidation

2014


merchantbooksPayments

platform merchant bookstakeover


DR

AFT

…and achieve optimal scale while enriching the product / service offering

Company2018E EBITDA

margin (%)Norm. EV/EBITDA (x)2018E 2019E

Relevance toIssuing Acquiring POS&ATM

Online

Payments

Bank-

focused

Payments

Processing

Source: Information data provider as of October 25th, 2018

30.8% 17.0x 15.5xPOS and

gateways

27.5% 18.9x 16.3x

16.9% 10.3x 9.0x


Merchant

acquiring &

Processing34.0% 14.5x 12.9x


DR

AFT

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

M&A activity was sustained by high trading valuations…M&A in payments from the past to the future

Market momentum of digital payments – LTM EV/EBITDA

Trend of Payments M&A deals (2002-2016)

Payments

Asset Mgmt

Corporate bankingRetail banking

Sources: Information data provider as of October 25th; 2018 and Mc Kinsey report "How Value Creation Is Reshaping the Payments Industry"

Num

bero

f dea

ls(in

dexe

d to

200

2)Pa

ymen

tsde

als

(#)

51214216 first wave CAGR+ 17%

second wave CAGR+ 14%

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Merchant & Processing

Online PaymentsBank-focusedPaymentsPOS & gateways

>20.0x


DR

AFT

12.0x

17.5x

14.6x

18.6x

12.8x

11.0x

25.0x

10.5x

13.7x

11.1x12.4x12.4x12.0x

10.6x

12.0x

16.1x

10.5x

13.5x13.2x12.6x

11.5x

8.5x

14.6x

Pend

ing

Pend

ing

Pend

ing

May

-18

Feb-

18

Jan-

18

Dec

-17

Dec

-17

Nov

-17

Sep-

17

Jul-1

7

Jun-

17

Apr-1

7

Feb-

17

Dec

-16

Dec

-16

Sep-

16

Jun-

16

Dec

-15

Mar

-15

Nov

-14

Nov

-14

Jul-1

4

May

-14

Jul-1

3

…and strong resilience of the fundamentals, leading to a material re-rating on multiples

Country

Target

Bidder

CEE

Mer

chan

t ac

quiri

ng

Busi

ness CEE

Baltics

Proc

essi

ng

Actv

ities

Euro

pe

Average13.3x

Merchant Acquiring(Avg. EV/EBITDA multiple 15.3x)

Payments Processing(Avg. EV/EBITDA multiple 13.0x)

Issuing(Avg. EV/EBITDA multiple 10.5x)

Others(Avg. EV/EBITDA multiple 14.0x)

Balti

cs


PE backed

Sources: Companies' press releases and other publicly available information

Avg '17-'1814.3x

neg. n.a.

The Digital Payments in Italy


DR

AFT

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40% 50% 60% 70% 80%

The Italian Payments market is still under-penetrated compared to best-in-class EU countries…


Card payments penetration in Italy is relatively low with a potential gap to fill equal to approx. €150 - 200 billion (vs EU average)

Notes (1) defined as card payment transactions excluding commercial transactions divided by total consumer spending.Source: Nexi Capital Offering Memorandum; Economist Intelligence Unit, Euromonitor International Consumer Finance 2018 Edition; Statistical payments ECB – 2017.

Value of card payments (% total spending) (1)

Valu

e of

car

d pa

ymen

ts (%

GD

P)

Legend: Total consumer spending

€150 - 200 billion digital payment

spending gap in Italy vs EU average


DR

AFT

0.7 1.00.4 0.4 0.9 1.0 1.3 1.5 1.7 2.0 2.0 2.5

3.2 3.3 3.5 3.6 4.1 4.45.1

5.8

10.611.7

…with Italian leading Payments companies still sub-scaled vis-à-vis global peers


2017 Sales (€ bn)

Notes: (1) Pro-forma for First Data CEE transaction; (2) Pro-forma for SIX Payments acquisition; (3) Pro-forma for iZettle acquisition.Sources: Nexi Capital Offering Memorandum, publicly available information and information data provider as of October 25th, 2018

(1)

(1)

(2)

(3)

2017 EBITDAmargin (%)32 39 46 26 25 28 21 28 17 14 19 19 42 23 36 48 6 34 37 15 38 26

2018E EBITDAmargin (%)


DR

AFT

62%(2) mkt share

The Italian Digital Payments sector is evolving…

Italian market still under-penetrated

although customer behaviors are shifting towards the "digital"

Leading domestic Issuing & Acquiring

player driving consolidation

Leading Italian processing player

with a unique international footprint

New FinTechplayers are entering

the market

Market Players

Notes: (1) Card Payments Penetration defined as card payment transactions excluding commercial transactions divided by total consumer spending; (2) Based on value of payment card transaction on a pro forma basis at year ended 2017 and excluding PagoBancomat

23%(1) vs 43% EU avg



DR

AFT

…primarily driven by PE investments and FinTechinitiatives…


– Last investment round (July 2018) of ~€10 mn reserved to

leading to a pre-money valuation of ~€100 mn– Next round is expected to take place in 2019 targeting a maximum of €50 mn

– Takeover by (through ) in 2014 and subsequently by in 2017

– Strengthening of its international strategic positioning through target acquisitions in the European digital payments market

– Takeover by Bain Capital, Advent Int. and Clessidra in 2015 for ~€2.15 bn

– Domestic growth and expansion achieved through several M&A activities in 2005-2017 period (overall investments for approx. €3.5 bn since 2015)

– Group reorganization in 2018 leading to the creation of the Italian leading pure payments player

merchantbooks

Processing Actvities

CEE

– Postepay S.p.A. integrates activities of PosteMobile and sits on approx. 4.1 mnPosteMobile's Sims, ~26.2 mn cards and e ~2.5 mn digital wallets

– Poste Italiane / Postepay's new strategic positioning in the domestic payment market is also driven by investments in its e-commerce platform

+€100 mn


DR

AFT

…while traditional banks are shifting towards a full partnership model

In-house payment system / platform

Full outsourcing to pure payments player

Fully in-house Full partnership


Partial partnership

Outsourcing of the processing activities

( )

( )


DR

AFT

Final remarksM&A in payments from the past to the future

1. Global consolidationGlobal digital payments sector is expected to further consolidate in the near future (e.g., Wirecard and Ingenico as potential targets)The market rumours potential consolidation in Italy aimed at creating a "true" Digital Payments player with European scale

3. e-CommerceThe e-commerce industry has already successfully adopted the platform model (+20% CAGR in B2C e-commerce sales over the last 5 years)Largest payment operators are looking to partner with payment and delivery platforms (e.g., PayPal, Nets, ACI, Permira-backed Klarna) leveraging on customer-centric solutions

4. FinTechCross-border payments, instant payments and money transfers are set to become the "new normal"Fintech initiatives will drive more and more innovation

2. Banks' roleTraditional banks will become platform players, owning the relationship with customers and facilitating the connection with digital payments providers Major European banks are leveraging on open APIs to securely open their systems and allow fintech and other third-parties to create VAS that can be integrated with the bank offerings

Thank you for your attention

© 2018 KPMG Advisory S.p.A., an Italian limited liability share capital company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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M&A in payments from the past to the future · Notes: (1) Card Payments Penetration defined as card payment transactions excluding commercial transactions divided by total consumer