Vantiv Inc (NASDAQ:VNTV) is one of the largest payment processors in the U.S., and now it’s setting its sights on the rest of the world.
Earlier this month, VNTV purchased UK-based Worldpay Group for about $10 billion in an all-stock deal. According to Worldpay, it has 400,000 customers in 146 countries and deals in 126 currencies. But, it doesn’t have a strong presence in the U.S. market.
On the other hand, VNTV, which has been growing through acquisition for years now, saw the opportunity to buy into global exposure with this merger.
The payments processing sector is very hot right now as more consumers utilize online and mobile transactions to conduct business. The first stage of this growth saw smaller companies get swallowed by bigger ones in local and regional markets. Now that consolidation has matured at that level, the bigger local players are now looking to expand their global franchise.
Vantiv, like Worldpay, has roots that go far deeper than the current e-commerce trend. VNTV is a spinoff from major U.S. regional bank Fifth Third Bankcorp (NASDAQ:FITB). It was the ATM division for the bank and then began to transition into its current state over the decades. Worldpay was a similar subsidiary of the Royal Bank of Scotland Group plc (NYSE:RBS).
FITB still remains a major shareholder in VNTV, which helps bolster its U.S. operations, with the bank serving as backstop to help its credibility among potential clients. But, at this point, Vantiv’s size and power speaks for itself.
You may recall that last year VNTV was in the headlines for suspending its operations for daily fantasy sports sites DraftKings and FanDuel. Many states attorneys general were considering lawsuits asserting that DFS sites constituted illegal gambling. That would have had serious complications for VNTV to continue its growth while fending off lawsuits.
The Worldplay deal has sent the VNTV stock up more than 10% in the past month, and it’s up nearly 20% year to date. But, the fact that VNTV, a $14 billion company by market cap, bought a $10 billion company, shows that both parties understood joining forces would be mutually beneficial. According to Bloomberg, it’s expected that the combined company will do $1.5 trillion in payment volume and 40 billion transactions annually.
Market research firm Allied Market Research released a report earlier this year predicting the payment processing market will grow at an compounded annual growth rate (CAGR) of 33% until 2022, which leaves plenty of room for growth.
The merged company will take the name Worldpay to reflect its global ambitions. This a win-win deal that shouldn’t see much regulatory resistance since neither company currently has much of a presence in each other’s dominant markets.