Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Another day, another proposed takeover in the fast-growing payments sector. But investor enthusiasm is running into some hard financial truths. Not every payments company is equally valuable, and not every buyer is willing to splurge.

Shares of U.K. company Paysafe Group Plc -- whose businesses include payments processing, digital wallets and money transfers -- are trading at an all-time high after an approach from private-equity bidders Blackstone and CVC. The proposed cash offer of 590 pence per share, while still preliminary, would give Paysafe an enterprise value of about 3.9 billion pounds ($4.5 billion). That's close to 14 times trailing 12-month underlying earnings, according to Bloomberg data.

Pay Up
Shares of Paysafe are at an all-time high after a preliminary offer from Blackstone and CVC
Source: Bloomberg

That's not good enough for some analysts. Sector bellwether Worldpay Group Plc, which recommended a 7.7 billion pound proposal from U.S. rival Vantiv Inc. this month, trades at an enterprise value of 21 times underlying earnings. Sweden's Bambora AB has agreed to be bought by France's Ingenico for 1.5 billion euros, about seven times last year's sales. 

But even though there is pressure to consolidate in the broader payments industry, not all companies are the same. Paysafe has traded at a price-to-earnings discount to bigger rivals for years because it is riskier: about half its fee revenue comes from online gambling and gaming.

Where's My Premium?
Paysafe shares trade on a lower forward P/E ratio than Worldpay and Ingenico
Source: Bloomberg

In December, Paysafe's shares suffered a nasty blow because of fears about its exposure to China's crackdown on gambling, although they recovered. This is not your run-of-the-mill Worldpay-style payments giant, even if that may be the goal of its prospective private equity buyers.

Not Your Average Payments Firm
Paysafe's 2016 fee revenue by sector
Source: Bloomberg

The stock-market reaction is reassuring. Paysafe shares are trading at 580.50 pence, just below the proposed offer but about 7 percent above Thursday's close. Old Mutual Global Investors, whose 10.3 percent stake makes it the biggest shareholder, has indicated support for the bid. Paysafe's board hasn't recommended the offer yet, but there's no sign of significant pressure to push back against the terms.

It's similar at Worldpay, whose shares are trading pretty close to the Vantiv offer, despite early hopes that a rival bid might emerge from JPMorgan Chase & Co., Paypal Holdings Inc. or someone else to spoil the friendly offer. Buyers are naturally nervous about topping what are already pretty toppy valuations. Worldpay's size and dominance of the U.K. market would make it a pretty big morsel for most suitors to swallow.

The payment sector's fundamentals are obviously pretty strong; it's like the boring but wealthy older member of the fintech family. For both industry buyers and private equity the attraction of double-digit growth rates is easy to understand. It wouldn't be wise to completely rule out rival bidders for these companies down the line. But the summer heat has already baked in a generous premium for the sector. A reset of expectations is overdue.

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

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net