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Bids, Mergers and Takeovers

Paysafe agrees to acquire Delta Card Services

21 July 2017 07:35

Paysafe agreed to acquire Delta Card Services, the holding company for Merchants' Choice Payment Solutions (MCPS), a payment processor based in the Houston suburb of Shenandoah, Texas.

MCPS is a data-focused full service payment processor for merchants and sophisticated, high-volume Independent Sales Organisations (ISOs) in North America.

Delivering card processing services to approximately 60,000 merchants in 50 states and processing over $14 billion in sales volume annually, MCPS is a leading provider to small and medium-sized businesses.

The acquisition of MCPS expands Paysafe's processing scale and product-set for ISOs and merchants in North America.

The addition of point-of-sale (POS) activities to Paysafe's Processing division significantly strengthens its ability to provide processing for POS, online and order ahead payments all under a single real-time consolidated analytics platform.

The consideration of $470 million, which is payable in cash, will be funded by a $380 million Incremental Loan Facility drawn under the existing Senior Facility Agreement, underwritten by BMO Capital Markets, Deutsche Bank and other syndicate banks, plus $90 million from existing cash funds.

MCPS reported revenue of $446 million and earnings before tax of $18.4 million in the year ended 31 December 2016. At that date, MCPS had gross assets with a value of $90.4 million.

Meritus, a Paysafe Processing subsidiary, is an existing partner of MCPS. A portion of MCPS' revenue will therefore be treated as inter-company in the combined business.

In addition, ahead of the acquisition, MCPS is acquiring merchant portfolios from some of its ISOs, which will result in lower third-party fees payable to partners from the date of the acquisition.

Had MCPS been owned by Paysafe for all of financial year 2016 and the merchant portfolios acquired at the start of that year, pro-forma consolidated 2016 revenues for MCPS excluding inter-company transactions would have been $329 million, an increase of 6% compared to 2015.

Pro-forma gross profit of MCPS would have been $72 million. Pro-forma adjusted EBITDA1 for MCPS would have been $49 million, which represents a pro-forma EBITDA margin of 15%.

The combination with MCPS is expected to result in annual cost synergies of approximately $7.5 million, in addition to certain revenue synergy opportunities.

On a 2016 pro-forma basis, Paysafe's revenue exposure to online gambling would have fallen from approximately 46% to 35%, and revenue from the Asia Gateway business from approximately 13% to 10%.

MCPS CEO Todd Linden will remain with the company as part of Paysafe's North America Processing operations. He joined MCPS as COO in 2010 and was appointed CEO in 2015.

He has 31 years of industry experience. MCPS CFO Giovanni Diano will also remain with the combined company. He joined MCPS as CFO in 2010 and has 14 years of industry experience.

BMO Capital Markets acted as financial adviser to Paysafe and Stikeman Elliott LLP served as legal counsel.

The acquisition of MCPS constitutes a Class 2 transaction for the purposes of the UK Financial Conduct Authority's Listing Rules. The acquisition is expected to close in the third quarter of 2017.

Paysafe has today separately announced a possible all cash offer for the entire issued and to be issued share capital of the group by a consortium consisting of funds managed by Blackstone and funds managed by CVC Capital Partners.

Given the restrictions placed on forward-looking statements as a result of that announcement, this announcement does not contain full-year 2017 guidance for the combined group.

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