The Green Sheet Online Edition

July 08, 2013 • Issue 13:07:01

Finding buyers in the online payments biz

By Brian Crozier
NetPayment Solutions Inc.

Online payment companies are in demand by larger players in a race to consolidate the industry. Smart sellers don't try to time the market, nor do they wait to be courted. They actively seek buyers.

They also watch for acquisition activity in other segments of the industry because the implications of buyouts and mergers in one area can signal bigger changes ahead.

Activity is occurring across the global online payments industry, which is still highly fragmented, with an array of companies making revenues from $1 million to $100 million.

These smaller payment service providers often focus on niche markets such as online bank payments, e-money, e-checks, mobile payments and local e-wallets.

A growing demand for smaller businesses

The range of merchants clamoring for more local payment options is expanding rapidly. Big players, including Visa Inc. and MasterCard Worldwide, are innovating in the e-commerce segment with billions in cash to spend. Owners of local payment companies are finding their options expanding beyond domestic payments to new global markets as more online retailers expand their businesses internationally.

Companies with payment products that serve unique niches bring loyal consumers and increase the potential to increase sales across all merchant channels. The opportunity is ripe for large online payment companies to roll up the smaller ones and consolidate a significant portion of the online payments business.

Given the ongoing economic uncertainty worldwide, it can be a struggle for any company to increase revenue by building capacity through its own efforts.

Buying smaller payment businesses is an attractive strategy to boost sales. Larger buyers can acquire smaller companies at lower risk because they bring a niche client base with recurring revenue that would otherwise take years to develop.

Ways to rule the sales process

Sellers of online payments companies can turn this situation to their advantage. If they identify the major players in their industry and look at the acquisition activity closer to home, they can find potential buyers for their businesses.

The online payments industry is fragmented. I am not suggesting the complexity of the selling process can be reduced to a handful of points. However, I do have the following suggestions:

• Understand your target buyer's merchant focus so you can gain insights into how your company can add something unique to that buyer.
• Be able to explain the synergies your payment services would bring and how these would benefit the larger business.
• Remember that the buyer's large distribution network would give your innovative payment products exposure to a new set of merchants, spurring new sales among the buyer's current portfolio.
• Do not conduct serial negotiations, which is a recipe for a poor valuation. Find examples of recent sales of online payment companies and apply valuation formulas used in those sales to estimate the selling price for your company.

Brian Crozier is President of NetPayment Solutions Inc, a company specializing in money transfers and payouts to any Visa or MasterCard anywhere. Contact him by email at brianusemybank@gmail.com or by phone at 416-822-3633.

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