Paysafe Group — Both target and bidder

Paysafe Group — Both target and bidder

Paysafe is potentially the target of a 590p per share (all cash) bid from a private equity consortium. Paysafe’s largest shareholder supports the bid, which must formally be made by 18 August. At the same time, Paysafe has announced the all-cash acquisition of a US payment processor for $470m. This reduces the group’s exposure to the gambling sector and strengthens its position in North America.

Katherine Thompson

Written by

Katherine Thompson

Director

Paysafe

Both target and bidder

Bid and acquisition

Software & comp services

25 July 2017

Price

583.5p

Market cap

£2,829m

£:US$1.3

Net debt ($m) at end FY16
*Includes deferred financing fees

279.8

Shares in issue

484.9m

Free float

98.7

Code

PAYS

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.0

27.0

50.1

Rel (local)

12.6

25.2

35.3

52-week high/low

583.5p

305.7p

Business description

Paysafe Group is a global payment solutions specialist operating in three areas: payment processing, digital wallets and prepaid services.

Next events

H117 results

8 August 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Paysafe is potentially the target of a 590p per share (all cash) bid from a private equity consortium. Paysafe’s largest shareholder supports the bid, which must formally be made by 18 August. At the same time, Paysafe has announced the all-cash acquisition of a US payment processor for $470m. This reduces the group’s exposure to the gambling sector and strengthens its position in North America.

Year end

Revenue ($m)

EBITDA*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

EV/EBITDA
(x)

12/13

253.4

53.1

15.1

0.0

50.2

74.2

12/14

365.0

82.9

22.0

0.0

34.5

47.5

12/15

613.4

152.6

25.6

0.0

29.7

25.8

12/16

1,000.3

300.8

42.1

0.0

18.0

13.1

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments

Potential bid at 590p per share

Since May, a consortium comprising CVC and Blackstone has made several proposals to buy Paysafe, which the board has rejected. With the consortium having raised the proposed bid price to 590p per share (all cash), Paysafe has now granted it due diligence access. The deal is conditional on the consortium selling the Asia Gateway to a third party; a buyer has already been found and key terms agreed. Proceeds from this sale will partially fund the acquisition. The consortium has until 18 August to make a formal offer. Paysafe’s largest shareholder, Old Mutual, is supportive of the bid.

Buying US payment processor for $470m

Paysafe is acquiring most of the assets of Delta Card Services Inc, the owner of Merchants’ Choice Payment Solutions (MCPS), a Texas-based payment processor, for $470m in cash. MCPS processes transactions worth more than $14bn pa for 60,000 merchants in 50 states. As well as online processing, MCPS offers point-of-sale (POS) processing, which will broaden Paysafe’s offering. The acquisition is being funded by $90m in cash and a $380m increase in the loan facility. Pro forma FY16 revenues were $329m and adj. EBITDA was $49m (15% margin). If fully owned for FY16, this would have reduced the contribution from online gambling from 46% to 35%, and the Asia Gateway contribution from 13% to 10% of group revenues. Paysafe expects to be able to achieve cost synergies of $7.5m.

Valuation: Reflects active payments M&A market

The potential offer of 590p is at a 9% premium to the closing price on 20 July but at a 34% premium to the volume weighted average price over the six months to 30 June, just prior to the start of sector M&A activity. Prior to the bid, the stock had gained 46% year to date.

For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with Paysafe. Paysafe is a research client of Edison Investment Research.

Exhibit 1: Financial summary

$'000s

2013

2014

2015

2016

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

253,367

364,954

613,392

1,000,282

Cost of Sales

(121,484)

(187,298)

(316,922)

(457,420)

Gross Profit

131,883

177,656

296,470

542,862

EBITDA

 

 

53,106

82,946

152,620

300,825

Company EBITDA

 

 

52,213

85,965

152,563

300,825

Operating Profit (before amort acq intang, SBP and except.)

42,888

71,257

133,201

268,251

Amortisation of acquired intangibles

(3,300)

(9,200)

(31,900)

(51,900)

Exceptionals

(1,368)

7,219

(60,986)

(8,249)

Share-based payments

(4,512)

(8,274)

(14,089)

(13,726)

Operating Profit

33,708

61,002

26,226

194,376

Net Interest

(995)

(2,024)

(14,418)

(26,383)

Profit Before Tax (norm)

 

 

41,893

69,233

118,783

241,868

Profit Before Tax (FRS 3)

 

 

32,713

58,978

11,808

167,993

Tax

(1,235)

(1,303)

(4,405)

(25,972)

Profit After Tax (norm)

40,311

67,703

108,686

212,968

Profit After Tax (FRS3)

31,478

57,675

7,403

142,021

Average Number of Shares Outstanding (m)

252.2

277.7

399.8

483.6

EPS - normalised (c)

 

 

15.1

22.0

25.6

42.1

EPS - FRS 3 (c)

 

 

12.5

20.8

1.9

29.4

DPS (c)

0.00

0.00

0.00

0.00

Gross Margin (%)

52.1%

48.7%

48.3%

54.3%

EBITDA Margin (%)

21.0%

22.7%

24.9%

30.1%

Company EBITDA Margin (%)

20.6%

23.6%

24.9%

30.1%

Operating Margin (before am and except.) (%)

16.9%

19.5%

21.7%

26.8%

BALANCE SHEET

Fixed Assets

 

 

65,551

295,955

1,569,269

1,552,326

Intangible Assets

53,231

284,723

1,548,253

1,518,445

Tangible Assets

12,320

10,114

18,492

23,452

Other Fixed Assets

0

1,118

2,524

10,429

Current Assets

 

 

184,490

177,275

259,045

420,313

Cash & cash equivalents

 

 

164,379

109,893

117,875

231,157

Restricted NETELLER cash

 

 

6,198

8,777

29,070

31,854

Cash held as reserves & settlement assets

 

 

0

38,607

66,341

100,459

Receivable from Members & Merchants

 

 

0

0

0

0

Trade and other debtors

 

 

13,913

19,998

45,759

56,843

Current Liabilities

 

 

117,634

114,410

170,943

232,617

Creditors

107,524

58,240

121,070

175,464

Payable to Members/Merchant liability

0

30,591

16,758

18,547

Short term borrowings

10,110

25,579

33,115

38,606

Long Term Liabilities

 

 

801

150,498

582,804

521,788

Long term borrowings

801

107,205

494,410

456,570

Other long term liabilities

0

43,293

88,394

65,218

Net Assets

 

 

131,606

208,322

1,074,567

1,218,234

CASH FLOW

Operating Cash Flow

 

 

94,542

42,699

91,711

278,487

Net Interest

(158)

(1,873)

(8,403)

(12,459)

Tax

(1,191)

(1,564)

(4,929)

(10,186)

Capex

(13,567)

(11,094)

(23,721)

(53,698)

Acquisitions/disposals

(5,281)

(169,192)

(1,102,070)

(43,827)

Financing

1,188

(4,939)

670,173

(13,482)

Dividends

0

0

0

0

Net Cash Flow

75,533

(145,963)

(377,239)

144,835

Opening net (debt)/cash

 

 

85,829

118,389*

(22,891)

(409,650)

HP finance leases initiated

0

0

0

0

Other

(1,697)

4,683

(9,520)

796

Closing net (debt)/cash

 

 

159,665*

(22,891)

(409,650)

(264,019)

Source: Paysafe accounts, Edison Investment Research. Note: *Does not match due to change in method for reporting net debt.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paysafe Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Paysafe Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Osirium Technologies — Building a UK cyber security brand

Osirium’s privileged access management software helps protect critical IT infrastructure from unauthorised use of privileged IT accounts, whether from hacking or internal threats. Since last year’s IPO, Osirium has strengthened its sales & marketing and R&D teams, added a global channel-based route to the mid-market and further developed its product suite. It is now focused on growing its user base, while upselling to its existing customer base.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free