- Silver Lake acquired Mercury Payments in 2010 for $450 mln
- Silver Lake sold Mercury to Vantiv in 2014 for $1.65 bln
- Vista bought TransFirst in 2014 for $1.5 bln and sold to TSYS for $2.35 bln in 2016
Steve McLaughlin is founder and managing partner of Financial Technology Partners, which says it’s the only investment bank focused exclusively on fintech.
Q: How has fintech changed in the past 10 years?
It’s changed a lot. Ten years ago, there was a lot of focus on capital-markets technology. Payments technology was just starting to get more popular. Then we had the financial crisis and everything slowed down. Capital-markets technology, and innovation, came to a virtual screeching halt. Post-financial-crisis, payments has had a strong resurgence, followed closely by alternative lending and more recently by things like insuretech and [governance, risk and compliance].
Q: Has PE become more accepting of fintech?
PE is more interested in the broad fintech space, for sure. For example, Vista Equity was 100 percent focused on software companies. However, Vista picked up and quickly sold TransFirst to TSYS. That’s an example of PE completely changing its tune. In the U.S., it’s turned into industry consolidation and the focus has shifted to international for private equity. Paysafe bought by CVC, Blackstone and Hellman buying Nets.
Ten years ago, coming out of the financial crisis, is when we saw a huge influx of PE looking at payments. It was Advent buying Fifth Third processing solutions [in 2009], which turned into Vantiv, Bain and Advent buying WorldPay [in 2010], which was bought by Vantiv [in July for $10 billion]. What we are seeing now is that these transactions are being sucked up by strategics. Mercury Payments being bought by Vantiv, Card Connect bought by First Data, Heartland being bought by Global Payments. FT Partners advised on all of these. The value being created now is by strategic synergies rather than financial engineering.
Q: Are PE firms taking part in more payments deals now?
I think there are a significant number of payments deals but I think it will slow down.
Q: Not everything in payments has done well. KKR’s $29 billion buy of First Data in 2007 was considered challenged for a long time. The company went public in 2015. How did this affect the sector?
KKR’s purchase of First Data was a symbol of excess leverage and the high purchase prices being paid at the worst time in the market. Combining the highest leverage and one of the highest prices, and the financial crisis, KKR was still able to make a reasonable return on First Data. This highlighted for the rest of the market that these assets are highly stable and can withstand significant turbulence and still make money. … People are realizing how resilient these companies are.
Q: What’s the biggest obstacle facing fintech right now?
Some companies are too high growth, too high value and “too high stakes/winner take all” to get bought out [by PE]. Like Stripe, Square, Cayan or Braintree. These companies have grown very rapidly, too fast for typical PE. On the other hand, you have lower growth companies that are getting bought out by strategics, like WorldPay, Heartland, TransFirst.
It’s been minority high-growth investors that have continued to propel these high growth companies. We’re seeing firms like SoftBank, Temasek, GIC and CDPQ in Canada starting to take big positions in these companies. … PE firms can never get their head around the price and the growth [of these companies] and they’re losing very big returns by not being able to buy [them].
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Steve McLaughlin, founder and managing partner of Financial Technology Partners. Photo courtesy of FT Partners.