In the payments industry, point of sale technology has become the "hottest area" of interest for companies considering an acquisition, according to the investment bank Berkery Noyes.
"As the trend moves away from cards, cash and gift cards to e-wallets, point-of-sale transactions will change," says John Guzzo, the bank's managing director in the financial technology and services group. "Anything that results in a quicker transaction, even if it is just for a $2 cup of coffee, can drive tremendous growth."
Guzzo has worked on more than 80 M&A transactions during his career, representing more than $3 billion in value.
Mergers and acquisitions activity in payments declined 37% during the first half of 2013 at just 36 transactions, compared to 42 a year earlier, according to Berkery Noyes' latest trend report.
The decline occurred on the heels of the industry's 36% spike in acquisitions between the first and second half of 2012 at 57 transactions, the highest point in nearly three years. The payments-industry volume for the first half of 2013 falls close to its average over the past 30 months, the New York-based Berkery states.
The most notable payments transactions this year were Total System Services Inc.'s acquisition of NetSpend, ACI Worldwide's acquisition of Online Resources Corp., and FIS' purchase of mFoundry, the report states.
The second half of 2013 will be busier for payments M&A's for various reasons, though last year's second-half surge had to do with companies wanting to get deals completed before the end of the year because of any potential tax assessment changes on capital gains, Guzzo says.
Because so many customers prefer to deal with one vendor for payments services, businesses are seeking a "single-vendor business model" when contemplating potential mergers or acquisitions, Guzzo adds.
"In the past, you had hardware and software vendors, and consultants," Guzzo says. "Financial technology buyers are acquiring payments companies that are product-focused, so they can converge different models."
The payments industry had many license-and-maintenance legacy business models, which are good, but not always the most attractive to buyers, Guzzo says. Today, companies prefer subscription-based business models, he says.
Data analytics represent another attractive and growing field in payments for buyers as they seek to harness vital customer and transaction data and repackage it for marketing and sales purposes, Guzzo says. "Payments companies want to offer more intelligence to their customers."
Big corporations tend to wait for one or two smaller companies to compete with similar payments technologies, then focus on "the one that survives" as a company to approach for a potential acquisition, Guzzo says.
In other instances, a company may be wiser to continue concentrating on its own core competencies and simply "lease good technology" because developing e-wallets or point of sale technology is an expensive endeavor, Guzzo says.
However, a merger or acquisition is generally more productive because it gives a company more control and focus on efficiency and profit margins.