Merchant Acquiring Earnings Round-Up

Navigator Edition: August 2012
By: Chris Sanson

Second quarter earnings season has come to a close, and acquirers in general have reported positive performance:

Volume and Revenue Results
Most acquirers reported at least modest increases in sales or transaction volume. All acquirers that reported revenue figures showed an increase over last year, due in part to the Durbin Amendment.

  • Vantiv reported a 29% increase in transactions for its Merchant Services division over the same quarter last year, resulting in net revenue of $176.9M (a 26% increase over 2Q11). Debit represented 74% of transactions in the second quarter.
  • JPMorgan Chase, parent of Paymentech, reported that merchant services revenue increased 13% over 2Q11. Bankcard dollar volume for the quarter was $160.2B, up 17% over 2Q11.
  • U.S. Bank, parent of Elavon, reported a more modest 2.2% increase in acquiring dollar volume over the prior year, led primarily by the government, financial, and apparel sectors.
  • Global Payments reported revenue growth of 25% in the U.S. over 2Q11, fueled by transaction growth of 13%, impacts related to debit legislation, and the CyberSource acquisition.
  • At TSYS, POS transaction volume for its merchant business (both direct acquiring and third-party processing) was flat for the quarter (0.8%) compared to the same quarter last year, though controlling for the BAMS deconversion, the company saw transaction volume growth of 12.4% over the same period.
  • From 2Q11 to 2Q12, merchant revenue at First Data increased 11%, compared to 3% transaction volume growth, driven in large part by new processing revenue from the BAMS alliance.
  • Transaction volume at Heartland’s SME division increased 6.2% from 2Q11, while net revenue increased 10.7%. Sales volume attrition for the company overall was 12.7% during the quarter.
  • iPayment’s sales volume declined 1.5% from 2Q11 levels, though its transaction volume was flat; quarterly net revenue increased 7.1% over the prior year to $91.3M.

Acquirers reported better performance on a net income and margin basis than they had a year ago.

  • First Data booked a net loss of $115M, driven primarily by interest expense, and an improvement of 10% over the same quarter last year. EBITDA margin for the Retail and Alliance segment was 45%, compared to 42% during 2Q11.
  • Heartland reported net income of $18M, up 45% over 2Q11. The company’s operating margin was 22.0% compared to 17.7% for the same quarter in 2011.
  • TSYS reported net income of $68M, up 24% over 2Q11. Operating margin for the Merchant Services Division was 26.4% for the quarter, compared to 20.9% for the same period last year.
  • Vantiv’s net income more than quadrupled, moving from $11.7M in 2Q11 to $47.6M in 2Q12. Its adjusted EBITDA margin was 50% for the quarter, which was flat compared to the same period last year.

M&A Activity
Although no major domestic deals were announced by the public U.S. acquirers, it appears that the M&A market remains active.

  • Global Payments announced it will pay $242M to acquire the remaining 44% stake in its joint venture with HSBC in Asia.
  • Cielo, the largest acquirer in Brazil, announced in July that it would acquire Merchant e-Solutions for $670 million.
  • TSYS commented that although it was not the winning bidder in the sale of Merchant e-Solutions, it is working on “several other deals” and is hopeful for success on the M&A front. (TSYS subsequently announced the formation of an acquiring JV with Central Payment Co., a small ISO it processes for).
  • Subsequent to its earnings call, Global announced it had agreed to acquire Accelerated Payment Technologies, formerly the payments processing division of CAM Commerce, from Great Hill Partners for $413M.

Interchange Settlement
Analysts were interested in opinions related to the recently announced settlement, but most respondents were either non-committal or did not expect a large impact to their business.

  • U.S. Bank commented that they do not expect surcharging to be widely used, but they are interested to see how this affects dynamics with American Express.
  • Heartland plans to treat the proposed settlement like it has Durbin, passing 100% of the 10bps in interchange reduction to all its merchants.
  • First Data characterized the likely impact of the settlement as “neutral” and cautioned that it is still only a proposed settlement at this point and will likely change.

For more information, please contact Chris Sanson, Senior Analyst specializing in Merchant Acquiring,

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