The $3 billion price Advent International Corp. and Bain Capital LLC will pay for an 80% stake in RBS WorldPay, the payment-processing arm of the Royal Bank of Scotland PLC, may point to an imbalance in value between privately held and publicly held payment processors, suggests David J. Koning, a senior research analyst at Milwaukee-based Robert W. Baird & Co.
The companies announced the deal last week (
In a research note, Koning says the “estimated transaction multiple from the RBS merchant-acquiring sales implies that publicly traded merchant processors could be undervalued relative to private-market business value.”
Advent and Bain, both based in Boston, are paying approximately 10 to 11 times RBS WorldPay’s earnings before interest, taxes, depreciation and amortization, he estimates.
Of the two publicly traded RBS WorldPay competitors, Atlanta-based Global Payments Inc.’s stock is trading at about eight times its estimated 2011 EBITDA, and Princeton, N.J.-based Heartland Payment Systems Inc.’s stock is about 7.5 times its estimated EBITDA.
“If we apply similar multiples to Global Payments and Heartland, it implies the stocks are trading at a significant discount to their potential private-market business value,” Koning says.
In trading this morning, Global Payments’ stock was selling at $39.07 per share, which Koning says could rise to $50 to $55 if it traded at 10 to 11 times the company’s EBITDA.
Heartland’s stock, at $15.22 per share this morning, could increase to $22 to $25 by applying the 10 to 11 times EBITDA formula, Koning says.
“When a company is for sale in the marketplace, if it’s available with a perceived long runway ahead of it, the market will pay more for it,” Robert O. Carr, Heartland chairman and CEO, tells PaymentsSource. “Having the bank relationship and the referrals from bank, which I presume are part of the deal, makes [WorldPay] more valuable than a standalone entity that doesn’t have a referral source.”
Heartland also is evaluating potential acquisitions. “Our preference is to grow organically, but we will continue to look at opportunities as they come up,” Carr says.
Meanwhile, analyst Robert Dodd of Morgan Keegan & Co. in Memphis, Tenn., says his initial assessment is that Advent and Bain got a good price for the RBS WorldPay business.
“What we don’t know is the financial structure of the entity,” Dodd says. “Did [RBS] put debt on it before they sold it? We don’t know if the price implies a total valuation of the business.”
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