MoneyGram Seen Cashing In at Decade-High Price: Real M&A
MoneyGram International Inc. (MGI), the world’s second-largest provider of money transfers, is poised to reward shareholders with the industry’s biggest payday in a decade.
MoneyGram has hired Bank of America Corp. to explore a sale, according to a person familiar with the matter, who asked not to be named because the process is private. MoneyGram may be able to fetch as much as $27 a share, said Macquarie Group Ltd. and Compass Point Research & Trading LLC. At 37 percent more than the stock’s 20-day average, it would be the highest takeover premium in the commercial financial services industry since 2003, according to data compiled by Bloomberg.
It’s been five years since Dallas-based MoneyGram resorted to raising funds from Thomas H. Lee Partners LP and Goldman Sachs Group Inc., and financial sponsors typically look to exit their investments after that amount of time, Macquarie said. The $1.2 billion company may post its biggest profit next year since the financial crisis, rebounding from bad housing bets that drove its market value as low as $70 million. Compass Point said it may attract other private-equity buyers with its free cash flow or Euronet Worldwide Inc., which failed to buy it in 2008.
Thomas H. Lee and Goldman Sachs are “looking for an exit at some point,” Dan Veru, chief investment officer at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “Certainly it would be a niche that I would imagine other payment processors would want to take a look at and see if it folds in with their business.”
His firm oversaw $3.9 billion as of April 30, including MoneyGram shares.
Michael Gutierrez, a spokesman at MoneyGram, said the company doesn’t comment on speculation, when asked whether it has hired Bank of America to explore a sale or has been approached by suitors.
Matt Benson, a spokesman for Thomas H. Lee who works at Sard Verbinnen & Co., and Andrea Raphael, a spokeswoman for New York-based Goldman Sachs, also declined to comment.
MoneyGram’s market value plunged in 2008 after the company recorded losses on investments tied to the U.S. housing market. Earlier that year, it also fended off a $1.65 billion takeover bid from rival Euronet by agreeing to raise cash from Thomas H. Lee, a Boston-based private-equity firm, and Goldman Sachs. The firms still own about 70 percent of MoneyGram.
“The company has obviously been through a tougher time,” Kevin McVeigh, a New York-based analyst for Macquarie, said in a phone interview. “If history proves reasonable, that five-year window tends to be when some of these financial sponsors look to monetize.”
Since the November 2008 low, MoneyGram shares have tripled to $20.36 yesterday. On June 18, the stock reached its highest closing price in 1 1/2 years amid takeover speculation and optimism about its earnings prospects. Analysts project MoneyGram will post about $103 million of net income next year, the most since 2006, the average of estimates compiled by Bloomberg show.
Today, MoneyGram rose 5.5 percent to $21.47 at 10:20 a.m. New York time, the biggest gain among 474 stocks in the Russell 2000 Financial Services Index.
MoneyGram, the largest provider of money-transfer services after Englewood, Colorado-based Western Union Co. (WU), predominantly caters to people without bank accounts, according to its year-end filing. Customers of such services -- often foreign workers sending cash home -- transferred almost $480 billion globally in 2011, according to the latest data from the World Bank.
Doug Greiner of Compass Point said MoneyGram could fetch between $20 and $27 a share in a sale, while McVeigh of Macquarie estimated $25 to $27 a share.
A bid at the high end of the estimates would be 37 percent more than MoneyGram’s average closing stock price in the last 20 days, the biggest premium for a commercial financial services deal valued at more than $1 billion since 2003, data compiled by Bloomberg show. That year, First Data Corp. agreed to buy automated-teller-machine company Concord EFS Inc. at a 47 percent premium, the data show.
Euronet (EEFT), which has a market value of $1.5 billion, could still see value in a deal with MoneyGram, Greiner said.
Euronet previously tried to buy MoneyGram to gain a bigger share of the cash-transfer business amid growing demand in emerging markets. MoneyGram had 321,000 global transfer agent locations as of March 31, up from 143,000 at the end of 2007, according to company statements.
“The strategic rationale Euronet talked about in 2007, about why they wanted to do the deal, I don’t think that -- on at least MoneyGram’s end -- there’s been a significant shift,” Greiner, who is based in Washington, said in a phone interview. “The business is actually a little bit better than it was back then.”
Stephanie Taylor, a spokeswoman for Leawood, Kansas-based Euronet, didn’t return a phone call seeking comment.
Telecommunications companies such as AT&T Inc. (T) and financial-services firms including American Express Co. (AXP) may also be buyers of MoneyGram, said Wayne Johnson, an Atlanta-based analyst at Raymond James Financial Inc.
A telecom carrier could bolster existing voice, video and data offerings with the payment-processing capabilities of MoneyGram, he said.
“This kind of service could be an add-on,” Johnson said in a phone interview. “It would seem to be natural to want to increase penetration.”
Other phone companies have entered this market, as well. BlackBerry (BBRY), the Canadian smartphone maker, said in February it was beginning a pilot program that would allow users to transfer money to their contacts over the BlackBerry Messenger service. The test could put BlackBerry in competition with MoneyGram and Western Union, as well as Xoom Corp. (XOOM), an online cash-wiring service.
Financial-services firms may want to use MoneyGram’s existing relationships with regulators, distribution channels and retailers such as Wal-Mart Stores Inc. (WMT) to expand in emerging markets, Johnson said.
Saman Asheer, a spokeswoman for Dallas-based AT&T, declined to comment on whether the company would be interested in buying MoneyGram. Michael O’Neill, a spokesman for New York-based American Express, declined to comment.
MoneyGram’s free cash flow and “reasonable” debt levels could attract private-equity buyers, David Scharf, a San Francisco-based analyst at JMP Group Inc., said in a phone interview.
The company refinanced its debt in March, improving its free cash flow, which analysts estimate may reach $120 million this year. It has a $125 million revolving line of credit and an $850 million loan due in 2020.
While there’s no guarantee a deal will take place, MoneyGram has become more alluring as an acquisition candidate, said Jason Nacca, a New York-based analyst for Sidoti & Co.
MoneyGram’s “debt structure is a bit more attractive now and a little safer from an M&A perspective,” he said in a phone interview. “With consistent profitability on the horizon, if there were ever a time for an acquisition, I think they are poised now just given their remarkable recovery.”
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