Global Payments (GPN) Buys Total System, Adds Capabilities

Global Payments Inc. (NYSE:GPN) , a provider of payments technology and software solutions to customers globally, has completed its earlier announced acquisition of Total System Services (NYSE:TSS), Inc.

This partnership has created a preeminent pure play payments technology company, focused on Small and Medium Businesses and leading Financial Institutions.

Total System, a merchant acquirer and credit card issuer and the largest third-party credit-card processor in the United States will perfectly complement Global Payments’ operations. Total System provides banks with credit and debit card portfolio management services which includes card authorization to detect fraud and calculating rewards. Global Payments is the country’s fifth-largest merchant acquirer, helping businesses handle credit and debit card payments.

The highly complementary nature of these leading payments companies provides room for significant revenue growth. Global Payments will gain from increased sales of cross-selling Total System’s products like Vital POS for retail to its existing merchants. Total Systems will also add more than 500 sales professionals and will more than double Global Payments’ domestic financial institution base of referral partners.

The combined company provides innovative payments and software solutions to approximately 3.5 million predominantly small to mid-sized merchant locations, services over 1,300 financial institutions across more than 100 countries and enables digital interactions with over 600 million cardholders globally.

The acquisition will provide Global Payments a market leading position in integrated payments, owned software, and ecommerce and omnichannel solutions.

Taking into account the impact of this acquisition, Global Payments expects adjusted net revenue plus network fees of nearly $8.6 billion, and adjusted EBITDA of nearly $3.5 billion.

The deal will also lead to at least $300 million in annualized run-rate cost synergies, with majority of synergies to be driven by significant areas of overlap. Full synergy effects will, however, be realized by third year.

The deal is the biggest in the history of Global Payments and will provide it an increased market presence in the payments industry, which is expanding rapidly and transforming to cashless and electronic. The best way to boost growth is via inorganic means and the company has struck the right cord.

With the most recent buyout, Global Payments will be cementing its presence in the fast consolidating payments space, which is posing stiff competition. The industry has witnessed a string of deals in the recent times, with two mega mergers in process – Fidelity National Information Services Inc. (NYSE:FIS) acquisition of Worldpay and Fiserv (NASDAQ:FISV), Inc.'s (NYSE:FIS) buyout of First Data Corp. In the same vein, in 2018, PayPal Holdings, Inc. (NASDAQ:PYPL) bought Swedish fintech company iZettle.

In a year’s time, the stock of Global Payments has gained 30% compared with its industry’s growth of 18%.

We believe that the company is well positioned for long-term growth given the recent acquisition. It also looks fairly attractive given its 12-month forward price-to-earnings ratio of 24.1 which compared favorably with the industry’s PE ratio of 26.75.

The company’s 2019 earnings are expected to grow by 17.34% compared with its industry’s anticipated earnings growth of 9.6%.

Global Payments carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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