When the first rumours about the Global Payments / TSYS deal came out on the bank holiday Monday, it was obvious that this would need to be deal we had to cover in this month’s newsletter. After FIS & Worldpay, and Fiserv and First Data, this was the third instalment in the story of the mega-mergers in the payments industry of 2019.

As part of this deal (which is expected to close in Q4 2019), TSYS shareholders will receive Global Payments shares at a ratio of 0.81 to 1 and the transaction is valued at $53 billion on a combined enterprise value. The combined entity is expected to generate $8.6bn in revenues this year serving over 3.5m merchants and 1,300 financial institutions in more than 100 countries. These are all big numbers. The strategic vision is not just to create scale but also to become an integrated payment provider, serving the issuing as well as the acquiring side in the ‘traditional four-party payments model’. In that sense, the rationale behind this deal is very similar to the other two.

TSYS generates about 40% of its revenues through issuer solutions, i.e. processing solutions for financial institutions that outsource their credit and debit card operations. It also has a prepaid business under the Netspend brand. Global Payments is one of the largest global merchant acquirers. Both companies see themselves as payment technology providers and believe that a merged entity will not only generate annual synergy effects of $100m + but also provide cross-sell opportunities to their existing client base.

There is no doubt that the creation of such mega players (or powerhouses as they are referred to in the official PR) do make sense on paper but it is really the implementation or post-merger integration that determines the success of such mergers:

• Is there sufficient market demand from merchants and/or financial institutions to buy integrated product propositions to drive synergies?
• Are the mega-players able to compete immediately with fintechs and the GAAF’s of this world and will they be able to respond quickly to changes in market demands that are driven by increased levels of digitisation, or are they – at least in the short-term - preoccupied by post-merger integration efforts?
• Are TSYS and Global Payments sufficiently well positioned to respond to changes in consumer’s payment behaviours (from cards to mobile or real-time account transfers)?
• Are all these deals focussed on consolidation in the more mature markets of North America and Europe, or are they a first step to build up strength to compete with technologies and players from Asia (or China to be more precise)?

There are many interesting implications and it will be quite revealing to see how quickly all three mega-players succeed in achieving the strategic objectives of their respective deals. But for those of us closely looking at all M&A in payments, an equally important question is “Who will be next?”. The trend of consolidation will surely continue and we are all eagerly waiting for the next domino to fall.‍

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).