M&A in Payments Sector Down but Not Out

Reports that mergers and acquisitions (M&A) fell 20% in the first half of 2022 compared to last year show how fast action can cool off, but it’s a slightly different story in the payments sector.

In a conversation with PYMNTS, Payroc Executive Vice President of M&A Nick Oberman discussed the comparatively upbeat mood in M&A for payments companies. As Oberman sees it, there’s plenty of interest, but fewer buyable firms may be slowing things more than economic headwinds.

Chalk it up to supply and demand. Inventory is down because valuations are lower, and buyers have been relying on low-cost leverage. But valuations are lower because capital costs are now higher, and the economic outlook is less than rosy.

“Some may joke that we’ve already bought everybody or acquired everyone out there that was looking to do so,” he said. “But it’s been a different time over the last quarter or two with the war, the economic downturn and what’s going on in our world right now.”

Payroc’s buying spree most recently embraced Worldnet, cementing the payment services provider’s (PSP’s) position among independent software vendors (ISVs) and giving its platform new capabilities for embedded payments as that form takes off.

With a “full speed ahead” mindset, Oberman said Payroc has no intention of backing off its M&A crusade, with a strong balance sheet and backing from venture capital partners who see growth and profit in the company’s acquisition strategy.

With a nod to his CEO — and father — Jim Oberman, whose focus is unrelenting when it comes to growth, Nick Oberman said the company and its partner, Parthenon Capital, are exploring acquisitions that will help it become the best company it can without losing the “family-style value” that’s always been a part of the business.

“What’s driving each and every one of our acquisitions has been carefully identifying that sales distribution that would quickly benefit from Payroc’s technology and product, putting those sales channels in a stronger and more competitive position.”

See also: Payroc Acquires Payments Platform Provider Worldnet

The Importance of a Good Fit

Often spoken of in the abstract, business culture fit is an important dynamic in M&A and one that Payroc considers with every acquisition. That’s been a winning approach for years.

Illustrating how engrained this thinking is, Oberman said, “when we did one of our first acquisitions prior to our capital partners joining us, the Integrity Payments deal, I believe it was back in 2018, the values that company possessed were so in line with what we set out to do and to gain and establish that the fit made that acquisition so much [brighter] in our eyes.”

In other words, acquiring (or being acquired) without a common view of the payments ecosystem and where innovation is headed probably means failure — and will probably end up hurting people, he said. And that isn’t Payroc’s goal.

Asked if buy now, pay later (BNPL) pure plays might make good acquisition targets for a diversifying PSP in the second half of 2022, Oberman said there are a lot of unknowns in BNPL right now and wondered at the underlying economics. Still, he said it could be a valuable addition to Payroc’s “toolbelt,” although it isn’t at the forefront.

“The question that’s not been answered is: ‘What is a safe room and is there a market to serve for that higher risk portion of the market that we’re unable to tap into, like traditional forms of credit?’” he said. “How will buy now, pay later attract those that are bankable or have been bankable? Will it displace a portion of that bankable portion of the market?”

Read also: Payments Company Payroc Acquires East Commerce

Acquiring for the Future

With the company’s solid acquisitions war chest and no crimp in its expansion plans, M&A for Payroc and others is likely to focus in the near term on what PSPs excel at, which is making payments easy.

This is especially true of the rising force in payments — millennials, Generation Z and the younger cohorts — who continue to add digital financial products and value ease and speed most. Old notions like loyalty to a particular brand or institution are less important.

“There’s going to be a lot of technology plays that you see companies like Payroc and other large payment providers in the industry going after for that ease of processing payments, whether it be from consumer to business or even person to person,” he said. “Technology, I think, is going to drive the next couple years for our company.”

Seeking complementary acquisitions to strengthen even more competitive position is hardly unique to Payroc, but the company’s singular focus on these values in its M&A strategy reflects trends in the broader payments and finance space that put a premium on innovation.

For Oberman that means making sure “new business originated is boarded on our proprietary technology platforms,” he said. “We want to make sure that we’re not outsourcing a lot of that business. We want it all to be on the Payroc platform. That’s why it’s important to continue looking for those great companies that can provide the technology in spaces that we may not have today.”