By picking up Worldpay, Vantiv is gaining valuable strength in two areas of utmost importance to merchant acquirers: Cross-channel transactions and providing grocers with a way to counter Amazon's incursion into the sector.
“Worldpay’s focus on e-commerce will be an accelerant to Vantiv’s overall top-line revenue growth rate," said Thomas McCrohan, a payments analyst at Mizuho. "Moreover, the competitive dynamics in grocery has changed with the acquisition of Whole Foods by Amazon, and we believe Vantiv is now much better positioned to support their grocery store client base as this channel embraces omni-channel."
The Wednesday announcement that Vantiv has agreed to buy Worldpay Group quickly quashed rumors of an impending bidding war between them and JPMorgan Chase, with Chase stating that said it wouldn’t be placing an offer to compete with Vantiv’s 7.7 billion pounds ($9.9 billion).
The boards of Vantiv and Worldpay reportedly “see compelling strategic, commercial and financial rationale” for the combination as well as “substantial opportunities for cost synergies.” These are obvious motivating factors behind almost any acquisition, but what specifically does Vantiv gain from this deal?
While Vantiv has been a powerhouse in U.S. acquiring, it has made little progress into European and other global markets. Conversely, since its divestiture from RBS, Worldpay has grown to be a top European acquirer and major payment services provider globally, with strong presence across merchant channels (both in-store, particularly in the UK, and online). However, in the US its market share remains relatively small (~2-3%). “The deal points to a number of synergies.” says Zilvinas Bareisis, Senior Analyst at Celent. “With relatively little overlap in the U.S., the Worldpay acquisition gives Vantiv an even stronger presence online and access to international customers”
Digital Omnichannel Focus
Over the last several years, Vantiv has acquired a number of companies in the digital payments space including Litle & Co. in 2012, Element Payment Services in 2013, Mercury Payment Systems in 2014 and Canadian payment processor Moneris Solutions in 2016. Vantiv’s experience in bringing companies under its umbrella could have been a deciding factor in taking on an acquisition of the magnitude of Worldpay. According to Thad Peterson, analyst at Aite Group, “My impression is that Vantiv has shown their ability to effectively integrate acquisitions into their culture and quickly benefitting from the transaction.“
While some of these acquisitions could be considered a thinning of the competitive herd, it’s also about preparedness for the fusion of offline and online transactions. “The Vantiv/Worldpay announcement continues a significant trend in deal activity across the payments ecosystem.” said Jason Oxman, CEO of the Electronic Transactions Association. “Driving much of this activity is the changing sales channel, as commerce solutions that encompass brick and mortar, e-commerce, and mobile become more important to retailers.”
Does this impact JPMorgan Chase?
The JPMorgan Chase decision to bow out of the bidding is unlikely have been due to sticker shock. According to Michael Moeser, Director of Payments at Javelin, “Had it been acquired by JPMorgan Chase, which has $337 billion market capitalization, it would have added less than 3% to the combined company's market cap. That's literally a rounding error."
However, while the Vantiv / Worldpay deal is insignificant to JPMorgan Chase as a whole, it may have deeper repercussions for JPMorgan Chase’s acquirer arm, Chase Paymentech. With Vantiv positioned to have greater presence in eCommerce and international markets, it is more of a direct competitive threat. “Whatever got Vantiv the deal over JPMorgan Chase's bid, the outcome isn't rosy for the ChaseNet play, which seems to continue to struggle to define itself five years on,” says Steve Mott, Principal at BetterBuyDesign. “Merchants can get everything ChaseNet has with Vantiv now, and likely superior economics to-boot.”