The U.S. Is Shopping in Europe this Autumn
The last few months have seen two very interesting pieces of M&A activity in Europe. First, we saw Wright Express’ take over CorporatePay. CorporatePay was a “pure play” program manager specializing in the corporate-loaded sector and, in particular, virtual prepaid cards used by the travel sector for supplier payments. For Wright Express, as the press release said, “[WEX] accelerates our on-the-ground presence within the U.K. and Europe.”
And secondly there’s been the recent purchase by The Bancorp of Transact Network Limited, a European electronic money license BIN sponsor. As the press release stated in a similar vein, it was all to “Expand Bancorp’s Payment Solutions presence into Europe.”
So, is this the start of more U.S. companies “buying their way” into Europe? I would argue no. Both deals had very particular circumstances around them. Certainly the WEX deal offered a great fit to Wright Express’ business and brought a strong additional capability around virtual corporate cards into the group business. For Bancorp it provided that toe hold into Europe, much as Metavante purchased Nomad in June 2008, we are seeing again an aggressive US group identify a European Player that will give them a starter for ten as they build their European business.
But it has not just been US companies shopping in Europe, only last week the Lenlyn Group purchased a majority stake in PCT, another U.K. pure play program manager. (Lenlyn Group also owns 100% of Raphaels Bank; one of the U.K.’s/Europe’s largest Visa/MasterCard BIN sponsors.) This is the first time a BIN sponsor has, in effect, acquired a program manager (although the transaction was formally carried out by the parent group, not the bank itself, and the press release makes clear the two will continue to be run independently).
Rather than the first two deals pointing to a more aggressive U.S. acquisition trail, I would argue what we are seeing are good companies looking to expand their businesses through the purchase of other good prepaid parties in the value chain. Many have argued for some time that the European prepaid market has too many program managers - more than 50 of various types, sizes and offerings. Thus, what we’re starting to see is prepaid being considered on a global basis and a certain amount of consolidation within the industry/value chain.
We also have seen European program managers increasingly move from the pure play position to applying for electronic money licenses and scheme membership. Again, this would enable them to consolidate the value chain and drive incremental profits and — many would argue — greater flexibility to their customers.
The question now more than ever remains: How many of the other general pure play program managers in Europe continue to compete against the increasing consolidation of the sector both from a value chain and international perspective and will there be more US companies coming shopping in Europe in the near future?