Thoughts On The Vantiv-Mercury Deal
The Vantiv investor call on the topic of the Mercury acquisition just ended and I'm staring at a page full of notes. Before I head home for the day, I thought I'd share some of them, as well as my own thoughts.
- On the call was Charles Drucker, President and Chief Executive Officer, Vantiv; Matt Taylor, CEO of Mercury; and Mark Heimbouch, Chief Financial Officer, Vantiv
- "Given Mercury’s strong double-digit growth, we expect that this transaction will be accretive to Vantiv’s net revenue growth by 1-2% annually." This surprises me. Not much growth for a $1.65B investment. Or, it hints at how much "1-2%" is for a company the size of Vantiv.
- "In 2013, Mercury generated net revenue of $237 million, growing by 17% year-over-year, and adjusted EDITDA of $93 million, growing by 23% year-over-year," says Drucker.
- Mercury's portfolio was also attractive because value-added integrated payments create higher client retention and increase revenue visibility.
- Vantiv plans to transition Mercury away from Global Payments "over time."
- Vantiv intends to continue to "vigorously defend" the Heartland lawsuit of Mercury.
- The planned Mercury IPO is, of course, cancelled.
- "Integrated payments is a high-growth and strategically important channel that is expected to represent over 30% of payments volume by 2017," says Drucker.
- "This acquisition provides an opportunity to expand Mercury’s network of software developers and dealers as well as to further penetrate its existing network, where we estimate that current penetration rate is near 10%," says Drucker.
- Mercury currently has 600 developer partners. The believed addressable opportunity is 3,000. This number is light. Business Solutions currently has more than 12,000 ISV subscribers in many niche verticals and we know we don't have them all. Still, Vantiv is correct in their being room for growth.
- Mercury currently has 2,430 dealer partners. The believed addressable opportunity is 5,000. I think this is light as well.
- Lots of talk about Mercury's technology and partner base, but nothing about the people at Mercury who own the dealer and ISV relationships. At the same time, there was a lot of talk about how Vantiv brings scale to Mercury. If the goal is to grow the integrated payments space, I hope Vantiv leans on Mercury big time for its people and relationships. Yes, Mercury has a solid product, but if Mercury's people go away, can Vantiv's people maintain and grow those dealer and ISV relationships? We've seen many payments companies flounder when it comes to working in the POS channel due to its idiosyncrasies. Luckily, a spokesperson for Mercury Payment Systems told me "the Mercury executive management team, including CEO Matt Taylor, will remain in place at Mercury. Mercury plans to maintain its offices in Denver and Durango and is currently moving into a new $10 million corporate headquarters in Durango.”
- I've reached out to a handful of POS industry veterans to get their take. Expect an article containing their reactions tomorrow.