Vantiv's (VNTV) roughly $10 billion purchase of Worldpay could shake up the overseas payments market and create issues for Jack Dorsey's Square Inc. (SQ - Get Report) and First Data Corp. (FDC - Get Report) .
Worldpay Group Plc is a UK payments technology company that generated £4.5 billion ponds ($5.8 billion) in sales from nearly 15 billion transactions last year. The company had a blockbuster £4.8 billion ($7.4 billion) IPO in 2015.
Vantiv shares dropped 2.7% to $60.80 on Wednesday. Worldpay dropped 36 pence to £3.72, after news that it would sell for £3.85 per share, including stock, cash and a 5 pence dividend payment.
The target operates in 146 countries, making it an attractive play for companies looking to broaden their international exposure. JPMorgan Chase & Co. (JPM - Get Report) said that it bowed out of the bidding after early participation.
Vantiv's deal follows Global Payments Inc.'s (GPN - Get Report) $4.7 billion purchase of Heartland Payments System Inc. last year and PayPal Holdings Inc.'s (PYPL - Get Report) $230 million acquisition of Tio Networks Corp. as companies seek greater geographic coverage, new technology and products or other capabilities to give them an edge.
"At a high-level, you have a number of forces like mobile payments, a surge in e-commerce, and greater security all concurrently accelerating the pace of the change within the payments ecosystem," KeyBanc Capital Markets analyst Josh Beck said in an email. "As a result, you have companies looking to become global franchises with a variety of technology 'tools' to address all of the change sweeping across the industry."
Vantiv's acquisition of Worldpay "fits in very nicely against this backdrop" said Beck, who outlined the logic of the deal in a February note. The merger combines creates a company with a global footprint that can process digital and in-store transactions with a presence in multiple regions, among other factors.
A number of companies could look to make acquisitions or become targets.
Vantiv's Worldpay acquisition could have a negative impact on Square's overseas ambitions, Wedbush Securities Inc. analyst Moshe Katri suggested in a note.
International payments is one of Square's four "pillars" of growth, Chief Marketing Officer Kevin Burke explained during the company's May investors day.
Outside of the U.S., San Francisco-based Square operates in Canada, Japan, Australia and the UK. "That represents about 40% of household consumption in the world," Burke said. "So we're making good progress, but there's still another $24 trillion out there."
Square gained 4.3% to $23.83 on Wednesday. KeyBanc's Beck had seen Square as a deal partner with Worldpay.
The company's technology could be appealing to a legacy payments company. Square's $8.9 billion market cap would make it a pricey but digestible purchase.
First Data faces challenges at home. Amazon.com Inc. (AMZN - Get Report) has hurt First Data and Vantive by taking market share from brick-and-mortar businesses, while Chase Paymentech has landed big clients such as Walmart Stores Inc. (WMT - Get Report) .
Despite facing a stronger global competitor through the combination of Vantiv and Worldpay, First Data gained nearly 2% to $18.42 on Wednesday.
First Data's $34 billion valuation, including debt, makes it too large to be a target. The company's $18 billion in long-term debt limits its ability to make large acquisitions.
Dutch outfit Adyen processed $90 billion in 2016 transactions, an 80% jump from the year before. The company would have been a good match for Vantiv, KeyBanc's Beck suggested, but could also appeal to PayPal.
Customers range from traditional retailers such as Tory Burch LLC, Burberry plc and L'Oreal SA to Uber Technologies Inc., Netflix Inc. (NFLX - Get Report) , Facebook Inc. (FB - Get Report) , Airbnb Inc. and Spotify Ltd
A 2015 investment by Iconiq Capital, which includes Mark Zuckerberg and Dorsey as investors, boosted its valuation to $2.3 billion. Other backers include General Atlantic, Singaporean sovereign wealth fund Temasek, Index Ventures and Felicis Ventures. Neither Global Payments nor Adyen responded to a query.
Stripe operates in 25 countries. from Europea to Asia and the Pacific to the Americas, giving the next-generation payments processor a geographical footprint that could appeal to suitors.
The San Francisco company has raised $450 million from Peter Thiel, Elon Musk, Alphabet Inc.'s (GOOGL - Get Report) CapitalG Sequoia Capital, Visa Inc. (V - Get Report) American Express Co. (AXP - Get Report) , giving it a $9.2 billion valuation.]
Total Systems Services Inc. (TSS) would have been a good match for Worldpay, KeyBanc's Beck suggested.
The Columbus, Ga., company could match up with Global Payments, which also has a substantial overseas presence, the analyst suggested. With a $12 billion valuation, including debt, Total Systems is almost as large as Global Payments, valued at $14.5 billion.
Shares of Total Systems gained 0.7% to $58.40 on Wednesday.