Perhaps not one of the best kept secrets, but Fleetcor this week made good on the earlier rumors, acquiring fellow B2B fleet card provider Comdata for $3.45 billion. The deal provides Fleetcor four new business segments, including B2B health care and virtual payment card services. Chief rival WEX earlier had staked its claim in those areas. Should it be worried?
As analysts speculated late last month, B2B fleet card player Fleetcor Technologies Inc. indeed had its sights on Comdata. On Tuesday (Aug. 12), it acquired the fleet card issuer and processor from FIS and Thomas H. Lee Partners in a deal valued at $3.45 billion. What the acquisition gives Fleetcor is entry into new B2B segments, including health care and virtual cards, emerging areas also of interest to rival WEX Inc.
Under the agreement, Fleetcor will pay approximately $2.4 billion in cash to refinance Comdata’s existing debt, plus about $1 billion to buy approximately 7.3 million shares of Fleetcor common stock, according to thedeal announcement. The companies expect the deal to close by the end of the year, pending legal and regulatory approvals.
Comdata is a long-time player in the B2B market, providing an array of electronic-payment products and services, including as a card issuer and processor. It provides fleet card, a virtual card (no plastic, just card information for online payment use), and prepaid gift card services to more than 20,000 customers who, combined, conduct about $54 billion in payments annually.
Ready to deal
Late last month, Ron Clarke, Fleetcor chairman and CEO, indicated that his company was in an acquisition mode and was “quite active” in merger-and-acquisition talks. Though Clarke didn’t mention Comdata specifically, analysts already were projecting the deal, down tonearly the amount Fleetcor agreed to pay for the company.
And Fleetcor doesn’t appear to be done dealing, Clarke indicated during an Aug. 12 call to discuss the Comdata acquisition that other acquisition talks are underway. “We do have some other late-inning deals that we like,” he said. “So if the deal is right and fits the screen, which is for us, we can improve the business, we’ll keep buying things. And to the extent that we feel overleveraged or out of capacity, we’ll slow down. But we are still looking at some other deals today.”
As for Comdata, Clarke noted on the call that the company adds four new segments where Fleetcor previously didn’t operate: an on-the-road trucking business, where Comdata is the market leader with its proprietary fuel card and cash-disbursement services; a national accounts business, where Comdata provides a universal MasterCard to its clients; corporate payments, where Comdata has established a health care vertical and a virtual MasterCard payment program designed to help businesses simplify their payables-payment process; and SVS (Stored Value Systems), which specializes in global gift card processing and program management.
Virtual cards the ‘crown jewel’
In explaining why Fleetcor pursued the deal, Clarke cited new fuel card markets, as the transaction adds two complementary yet underserved markets to Fleetcor’s North America fuel card business. “We do believe that we can bring our [small and midsize enterprise] distribution capabilities to bear and help Comdata sell more efficiently to smaller businesses,” he said. “We also expect to get some meaningful synergies in operating these businesses, which should also add to the earnings acceleration.”
Another motivation is the deal helps Fleetcor gain entry into the “attractive virtual card space, which is quite large and growing fast,” Clarke said. “Comdata’s got a great position, great proprietary technology, a pretty unique vendor-enrollment model, and some great reseller relationships,” he said. “Comdata’s well positioned, and our view is this could mature into a very big—I mean very big—business over time. So in some ways for us, this line of business is really the crown jewel of the company.”
In addition, acquiring Comdata dramatically increase Fleetcor’s overall size, its earnings base, and its diversity, Clarke said, noting Fleetcor sees a lot of potential from the acquisition.
“We like the new market potential that we can get to through expansion into the [on-the-road] trucking and national account fleet markets, … neither of which we’re in today,” he said. “I can’t tell you how excited we are about this virtual payments space, particularly given Comdata’s strong market position and success to date.”
WEX comparisons
Though Clarke seemed to dismiss the similarities in how Fleetcor’s strategy with the Comdata services it’s acquiring with what WEX has been focused on, but both companies see the on-the-road and health care segments as potential drivers of new growth, not to mention the virtual card market. WEX, for example, recentlyacquired Evolution1 to drive itshealth care B2B ambitions. Moreover, both companies also arecompeting strongly now in Europe, driven by recent separate card-portfolio deals.
The B2B fleet card market is becoming quite competitive, and both Fleetcor and WEX appear poised to serve as the market’s leaders. The Comdata acquisition gives Fleetcor leverage to grow. Investors liked the deal, as Fleetcor’s stock price was up 10 percent in midday trading on Aug. 13.
The question now is, what’s WEX going to do in response? Its stock price also was up 1.5 percent, so the Fleetcor/Comdata deal didn’t seem to affect investors’ expectations for WEX’s potential either.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More