Tuesday, July 22, 2014
London-based e-commerce payment firm Optimal Payments Plc agreed to acquire Los Angeles-based ISO TK Global Partners LP (doing business as Meritus Payment Solutions) in a $210 million transaction. The proposed acquisition, which is expected to close in the third quarter of 2014, is seen by Optimal and Meritus as a way to expand their e-commerce footprints statewide and overseas, respectively.
Optimal has an extensive portfolio concentrated primarily in the U.K., Canada and Europe, with one emphasis on legal online gambling in those markets. Meritus services small to midsize e-commerce businesses in the United States. Thus, the purchase gives Optimal a stronger foothold in the U.S. market, while Meritus will be able to leverage Optimal's payments suite to allow its U.S.-based merchants to reach new international customers.
In a statement, Optimal Payments President and Chief Executive Officer Joel Leonoff noted that the U.S. market represents the biggest expansion opportunity for Optimal. "After careful evaluation of a number of potential candidates, Meritus stood out as the perfect choice on all fronts," he said. "The company's strong stakeholder relationships, multi-channel sales force, established presence with small and medium businesses in the U.S. and entrepreneurial spirit makes them an ideal acquisition for us."
Meanwhile, Meritus Principal and cofounder Alan Kleinman added that the acquisition will allow the ISO to meet its strategic expansion goals as well. "Optimal Payments offers our employees, merchants and business partners the experience, global infrastructure and product offering to achieve the scale required in today's payments market," he said.
Dani Chafinoff, Chief Operating Officer at Optimal Payments, told The Green Sheet that Optimal intends to maintain the Meritus brand. "We have a lot of confidence and a lot of respect for what Meritus has done," he stated. "And we think that they have an incredibly strong brand recognition from their existing base, both from an agent perspective as well as just from the market in general. So the intent is to work very closely together to maintain our respective brands and find ways of taking advantage of the reach that Optimal has that Meritus doesn't yet have."
Optimal has also agreed to purchase another Los Angeles-based, e-commerce-focused ISO – Global Merchant Advisors Inc. – for $15 million. Together, the two acquisitions will add over 8,000 U.S. small and midsize businesses to Optimal's portfolio.
Chafinoff noted that Optimal has had more success in Europe and Canada than in the United States. "We needed the right partner to properly penetrate the U.S. marketplace from a sales perspective and dealing with ISOs and agents," he said.
That is essentially the same scenario for Meritus, only in reverse. "We've been really focused in the U.S., and now we have the ability to have our sales partners access not only Canada but Europe," Kleinman said.
Kleinman added that Meritus' merchants had been asking for a way to accept international payments, and Optimal provides Meritus the tools to do just that. "Both Optimal and ourselves really focus in the card-not-present world," he said. "There are no physical boundaries to where our clients operate. And so with that, having a single solution that enables these merchants to process throughout the world is very powerful."
Chafinoff agreed. "What happens typically and traditionally from an e-commerce perspective is that merchants just don't necessarily want to service just an individual geography or niche," he said. "They want to be able to go global and have local acquiring and local payment processing in the various communities in which they operate."
Unlike brick-and-mortar merchants, e-commerce businesses are not hampered by restrictions imposed on them by physical geographies. "In that regard, the more countries, or the more jurisdictions that you can offer local payment processing for and the more products and services you can provide, you can be a one-stop shop for their payment and risk management requirements," Chafinoff said.
Optimal operates the Neteller e-wallet, which is reportedly used by consumers in over 180 countries. The virtual wallet is integrated into online gambling sites, allowing horse race enthusiasts and gamblers in games of chance, for instance, to bet online. Meritus does not operate in the relatively small online gambling market in the United States. But, by acquiring the California-based ISO, Optimal gains a strategic foothold in a state that may eventually legalize online gambling.
The United States is governed by the Unlawful Internet Gambling Enforcement Act, which passed into law in 2006. It seeks to cut off the flow of revenue to illegal Internet gambling businesses by prohibiting U.S. banks and processors from facilitating online gambling transactions.
However, Doug Lewin, Executive Vice President at Optimal, said the UIGEA allows for individual states to offer online gambling to its residents. Nevada, New Jersey and Delaware already allow for it, with more populated states like California and New York hopefully following suit, Lewin added.
Development of online gambling has been a "slower process than if the United States passed one federal bill, but our sense is that over time many states will legalize and regulate online gaming," Lewin said.
Kleinman pointed out that Optimal is more than just an online gambling processor. "And that's what really excites us," he said. "So whether it's gaming transactions or e-commerce transactions, they work with a number of the big brands out there, in some of the regions of Canada and Europe. So our ability to access their infrastructure and product offering really enables us to provide a more well-rounded suite of products to the ISO, MLS community."
"It's very exciting for both teams," Chafinoff said. "Both teams have proven track records and are very dynamic and enthusiastic about what we can do together. Like we said, it's about the geographical reach. It's about the product offering. And it's taking advantage of a situation where one plus one can equal much more than two."
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.