Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Western Union is digging deep to assuage its fear of missing out.

The $9.7 billion payments company has offered to buy Australia’s OzForex Group, an international payments-services provider, for as much as $630 million. Perhaps it was spurred into action by PayPal’s $840 million acquisition of money-transfer service Xoom Corp. in July, which created a “direct competitive threat” to Western Union’s own online money-transfer business. 

Western Union is willing to pay up for OzForex, offering a premium of as much as 42 percent, double the 21 percent premium PayPal forked out for Xoom. The offer values OzForex at 21 times Ebitda, which looks high considering Western Union's multiple is less than half that, according to data compiled by Bloomberg.  

This could have been avoided if Western Union moved earlier: it could have snapped up OzForex for less than $500 million ahead of the Sydney-based company’s IPO two years ago.

The Cost of Waiting
Western Union could have paid less by stepping in before OzForex's 2013 IPO
Source: Bloomberg

The deal is unlikely to move the needle in the near term: Western Union’s own online business contributes 5 to 6 percent of revenue and the addition of OzForex wouldn’t lift it much higher than 7 percent based on current results.

Rather, it’s a longevity play and designed to prepare Western Union for when its traditional money-transfer services fall further out of favor. Already, its main audience -- immigrants who send money to relatives or pay bills internationally -- are turning to cheaper and easier digital alternatives. 

It’s already been a slog for Western Union, which earlier this year cut prices for domestic money transfers in response to its rivals. Its core consumer-to-consumer business has been a drag on growth, with revenue rising just 0.1 percent on average over the past four years, according to data compiled by Bloomberg. That compares with average growth of 6.5 percent during the seven years before that.

Bricks and Clicks
Western Union's online business is outpacing its traditional services
Source: Bloomberg

Investors haven’t been impressed: Its shares have barely moved since its 2006 initial public offering, when the company was spun off from First Data Corp. 

The Englewood, Co.-based company's offer for OzForex leaves at least one company out in the cold: MoneyGram International, whose shares shed as much as 2 percent on Thursday. MoneyGram was a takeover target as recently as May, although Western Union denied early-stage merger talks.  

The lofty offer for OzForex may just be high enough to deter other potentially interested buyers, especially since most have recently locked in deals of their own. Last year, Euronet Worldwide bought HiFx while Bridgepoint snapped up Moneycorp.

Even if Western Union secures its target, the fragmented payments industry should prepare for more big checks: the consolidation wave has a way to go yet. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Gillian Tan in New York at

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