Deluxe Completes its acquisition of First American Payment Systems “FAPS”  for $960M Cash

On June 3rd, 2021, Deluxe completed the acquisition of First American Payment Systems. Deluxe is a US-based small business financial services and business technology company. With humble beginnings in check-book manufacturing and distribution, Deluxe has transformed into an all-inclusive small business services company. The company offers end-to-end solutions, from marketing and logo design to payroll and receivables. As a result of their continued innovation, Deluxe has amassed more than 4.8 million active small business clients, and more than 4,600 financial institution clients. With the acquisition of First American Payment Systems, they have significantly advanced their existing position within the payments technology industry. 

Deluxe is headed by CEO Barry McCarthy. McCarthy, who entered his role in November of 2018, has been crucial in spearheading the ongoing development of the company's payments segment. McCarthy’s expertise in fintech and small business tech solutions is largely attributable to his impressive past, including a 14 year tenure at First Data Corporation. 

McCarthy’s most significant contribution was the introduction of the “One Deluxe” strategy. This strategy is intended to foster a link between Deluxe’s multiple revenue streams. The company had previously managed to diversify product offerings, but struggled with complicated integration tactics. “One Deluxe” is intended to add value through the creation of comprehensive solutions for customer lifecycle problems. First American Payment Systems will prove to be a valuable asset in achieving this goal, which requires inorganic growth to be appropriately scaled. 

Based in Fort Worth, Texas, First American Payment Systems provides credit and debit card processing services, as well as other payment technology solutions to merchants in North America, South America, and Europe. The company works to integrate, sell, and accept payments and is dedicated to satisfying the many needs of ISVs. Neil Randel serves as the CEO of First American and has been in that position for over 23 years after being a Vice President at the company for five years prior to stepping into the role. Not many people know this, but Randel along with members of the management team acquired First American from a PE firm, Lindsay Goldberg, in a private deal. Some might see this as an issue but Randel not only is the CEO but also serves as the title chairman on the Board of Directors. No serious issues have arisen due to this layout. Prior to working at First American, Randel founded Nation Merchant Services  and FirstNet Corporation which were designed to provide merchant services such as payment processing. He serves on three boards currently, previously held a position on the American Heart Association board and was named the southwest area Ernst & Young Entrepreneur of the Year in Business Services in 2004. 

The deal is an all cash, $960 million transaction, making it the biggest in Deluxe’s 106 year history. The acquisition is projected to double Deluxe’s existing payment segment revenue, alongside a host of immediate revenue and cost synergies. Additionally, the deal’s completion creates vast opportunities for cross-selling and advancement into previously untouched client verticals. Vertical opportunities include government, not-for-profit, and retail spaces, amongst others. First American’s long-established distribution channels of ISVs, financial institutions, and ISO’s combined with Deluxe’s strong client base should create plentiful opportunities for cross-selling. Furthermore, this synergy should increase company expansion and distribution rates rapidly. 

First American Payment Systems has an existing foothold in the global market, while Deluxe is primarily focused on North American markets. It is hoped that this deal will help Deluxe grow into a market that does not have a strong leader yet and much room for growth. The merchant services market has high secular growth rates and recurring revenue which allows Deluxe to tap into such a strong and growing market. This particular deal also opens up an avenue for future acquisitions within the same or similar space. Deluxe’s EBITDA was projected to rise 7-9 percent year over year in Q1 of 2021. Just like many deals we have reviewed, this particular acquisition is mutually beneficial but especially allows Deluxe to take advantage of the services First American was built on and bring it to a larger market. 

Stripe Acquires payments company Bouncer

On May 14th, 2021, Stripe announced its acquisition of Bouncer in order to reduce fraudulent activity that occurs through its processed payments. Stripe is a privately held payment-processing company that builds economic infrastructure for the internet. Stripe is headquartered in Dublin, Ireland and is currently led by CEO Patrick Collinson who co-founded the company with his brother John in 2010. The two brothers created the company to see if they could create a simple and easy way for other companies to accept payments online. Stripe currently has its own fraud prevention tool known as Radar, and plans on integrating Bouncer’s platform into this tool in order to increase security. Stripe has raised over $2 billion in funding and operates in 43 countries with plans to expand further into Asian markets including India, Brazil and Thailand. To date, the company has acquired over 50 businesses as customers which process more than $1 billion in transactions annually, helping it to achieve a valuation of almost $100 billion. 

Bouncer is a company that builds card authentication technology in order to help reduce fraud that occurs during online transactions. It is currently headquartered in Oakland, California and is led by CEO Will Megson who co-founded the company along with Sam King, its chief scientist. Megson boasts an impressive pedigree, with previous employment at Lyft, Groupon, and UC Davis. For online transactions, Bouncer will add an additional layer of security to Stripe’s “Radar” tool. It will prompt customers to submit a live photo of the card that they are attempting to pay with and then perform a risk assessment. This risk assessment will take less than a second to complete, meaning that there is little inconvenience for customers but allows businesses an extra layer of safety. Bouncer will be able to decide if the card is stolen and either reject or approve the payment. 

Stripe has not chosen to disclose the financial terms of the acquisition of Bouncer. However, we do know that it is acquiring both Bouncer’s technology and its team in order to allow for a smooth integration into Stripe’s Radar. Stripe plans on using Bouncer’s technology in order to reduce false positives of fraudulent transactions online, ensuring that legitimate customers are not blocked from doing business with companies online. Currently, both Radar and Bouncer have different tiers of pricing for varying levels of services. For example, Bouncer may charge up to $0.15/scan for its basic solution, while it may increase prices in order to more thoroughly evaluate fraudulent transactions for its customers. By combining these two services, Stripe will be able to offer more secure services for its clients, likely at a lower cost than its competitors. Stripe currently competes with other payment service providers such as Square and Paypal. Companies in this vertical are often thought of as extremely similar, and differentiation in the form of extra fraud protection for their clients may be enough for Stripe to gain more clients and increase their revenue. 

This acquisition of Bouncer follows others that Stripe has made in recent years. In April 2021, Stripe acquired TaxJar to add cloud-based, automated sales tax tools into its payments platform. Financial terms of this deal were not disclosed, but TaxJar was valued at $180 million when it last raised money in January 2019. In October 2020, Stripe acquired Paystack, a company which allowed for integration of payments services into online or offline transactions, to accelerate online commerce across Africa. The transaction made payments easier for African businesses and enabled more global companies to enter the region. In April 2019, Stripe acquired Touchtech Payments for an undisclosed amount. Touchtech is a  company that provides credit card issuers with advanced authentication technology, allowing them to offer improved security without compromising user experience. Stripe’s acquisition of Bouncer will help to increase this security. 

Visa to Purchase Tink 

On June 24th, 2021, Visa (NYSE: V) agreed to buy Tink, a Swedish open-banking firm. 

Visa is a global leader in digital payments. Headquartered in San Francisco, California, Visa provides credit cards, debit cards, and prepaid cards via co-branded partnerships, as well as payment solutions and ATM services to financial institutions, consumers, merchants, and banks. With a workforce of over 18,000 strong, Visa maintains a global network rivaled by few. Visa is led by CEO Alfred F Kelly Jr. He has over 25 years of experience in the payment industry, starting out at American Express before transitioning into Visa. He is a top 5 CEO according to Glassdoor, and is leading the integration of cryptocurrency services in Visa.

Tink was founded in 2012 and is headquartered in Stockholm, Sweden, and they have offices all across Europe. They are an open banking platform. To the uninitiated, open banking provides open access to financial data to third party financial service providers. They serve banks, fintechs, and startups. With over 3,400 integrated banks and institutions as well as over 10 billion transactions completed every year, Tink is the European open banking leader. Tink provides products and services such as Income Check, which uses real-time data to verify the true financial capacity of any customer, and Account Check, which uses real-time data to verify true account ownership. CEO Daniel Kjellén co-founded Tink with CTO Fredrik Hedburg. 

The transaction is valued at SEK18.2 billion, or $2.2 billion. Visa will use entirely cash on hand. While V’s stock initially dropped on the announcement, share price recovered as the day went on, even closing slightly above the open. 

Tink, primarily operating in Europe, would have access to Visa’s global network post acquisition, all while maintaining current operations, headquarters, and management team. Visa understands that open banking will help fuel the future of fintech as payments are increasingly less reliant on cards. In fact, this is not Visa’s first attempt at purchasing an open bank. Before agreeing to acquire Tink, Visa was to acquire Plaid, an American open banking firm, in an attempt to have greater access to connecting bank accounts. This deal was struck down by the US Department of Justice in an antitrust lawsuit since the deal would limit competition in the payments space. Visa, expecting regulatory pressure once again from the US as well as the European Union, has not provided a timeframe for acquisition completion.

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