NEW YORK (The Deal) -- Online and mobile payments processing company Optimal Payments announced an agreement on Monday to acquire online processing peer and digital wallet provider Skrill Group from private equity firm CVC Capital Partners Group and minority investors including Bahrain's Investcorp Bank BSC for an enterprise value of 1.1 billion euros ($1.2 billion) in cash and shares.
The plan is to create one of the global leaders in the provision of digital wallets to both merchants and customers and provide payment solutions using prepayment cards and functions, as well as catering to consumers who prefer not to use credit or debit cards for online transactions.
The deal will more or less double Optimal Payments' annual earnings, but will require significant additional funding, which the company is planning to raise with a discounted rights issue to its existing shareholders. It said it expected to raise about £451 million ($671.7 million) from shareholders including Old Mutual Global Investors, which has 11.3% of the company and Thornburg Investment Management, with 5%. The company's directors between them hold 2.55% of the stock and will also subscribe to new shares.
The buyer is listed on London's Alternative Investment Market, and described the acquisition as a reverse takeover under AIM rules. But it said it planned to seek a listing on the main board of the London Stock Exchange and inclusion in the FTSE250 index if the deal went ahead.
Optimal Payments has been growing faster than Skrill over the past three years and overtook it in revenue terms last year, but it said the two London companies would have generated combined revenue of $697 million and EBITDA of $167 million in fiscal year 2014.
CVC, which first invested in Skrill as recently February 2014, did not return a request for further information and comment. It bought the controlling stake from investors led by Investcorp in a deal valuing the business at €600 million.
Skrill reported EBITDA of $88.9 million on revenue of $331.5 million in the year to September 2014, while Optimal Payments generated $86.1 million of EBITDA on revenue of $365 million in the year to December.
Optimal Payments said the enlarged group will have enhanced scale and market leadership in the stored value and payment processing sectors and a broader exposure to digital media and e-commerce and online gambling. It will offer more than 100 different payment types in over 22 languages and 41 currencies. It will also be well positioned to capitalize on expected growth in the North American online gambling market.
Optimal Payments will pay €720 million in cash and just shy of 35.5 million of its own shares to acquire CVC's holding company for the company Sentinel Topco, and co-investors including Investcorp Technology Partners, giving the target's current owners about 7.9% of the enlarged company. Skrill has €256 million of net debt.
The acquisition values Skrill at a multiple of 9.3 times EBITDA for the 12 months to September 2014 including targeted cost synergies of $40 million a year by the end of 2016, or 13.5 times EBITDA excluding the impact of synergies. Based on Optimal Payments closing price of 419 pence a share on Friday, March 20, the last trading day before the deal was announced, the transaction values the acquirer at 14 times EBITDA for its own financial year, the 12 months to December 2014.
There will be one-off costs of about $26 million to achieve the synergies, but acquirer's board believes there will be potential additional value from cross-selling opportunities and platform consolidation
As well as the rights issue, at a 60% discount to Friday's closing price, Optimal Payments has committed financing of €500 million from Bank of Montreal, Barclays Bank and Deutsche Bank. Optimal Payments' share was suspended from trading during the morning on Monday, but shot up 23.82% to 518.50 pence before the market closed.
Cyrus Kapadia, Aamir Khan and Olivier Christnacht of Lazard are financial advisers to Optimal Payments on the transaction and on the rights issue. Simon Bridges, Piers Combs, Andrew Lynn and Cameron Duncan of Canaccord Genuity are acting as Nominated Adviser, debt adviser, broker and joint bookrunner to Optimal Payments on the transaction and rights issue. Lorcan O'Shea, Yishai Fransis and Rahul Singla of Deutsche Bank are acting as joint bookrunner, while Jeffrey Couch and Neil Haycock of BMO Capital Markets are co-lead manager.
Jason Gurandiano, Matt Gehl, James Arculus, Lee Counselman, Jacques Raphael and Donovan Geissel of Deutsche Bank are advising Skrill.