Global Payments Inc. GPN charted a new lifetime high of $74.64 in yesterday’s trading session, following a Bloomberg report that it was in talks to buy smaller rival Heartland Payment Systems, Inc. HPY. Heartland stock soared almost 9% as well on the acquisition rumours, and also touched a new high of $94.96 in the trading session.
Global Payments presently has a market capitalization of about $9.3 billion, roughly thrice the size of Heartland — the sixth largest payment processor by volume in the U.S. and worth about $3.4 billion.
Although a final decision is yet to be made, Bloomberg reported that a deal could be announced as soon as this month itself.
With an increasing number of retailers offering online and mobile shopping, payment processing companies’ shares have enjoyed phenomenal gains. Global Payments shares have appreciated over 77% year to date, while Heartland stock has climbed over 57%.
Card-processing companies have been eager to consolidate their position to tap into the outstanding growth prospects in the industry. If the deal goes through, Global Payments’ annual revenues will almost double to around $5 billion, thus boosting its market foothold as well as improving profitability. The acquisition will also give the company access to new customers in the restaurant and retailing industries.
The buyout would also help reduce Global Payments’ dependence on third parties to sign up new customers.
However, any deal for Heartland would likely come at a steep price, as the stock is currently trading at over 74 times trailing-12-month earnings.
According to data compiled by Bloomberg, Global Payments has completed at least 20 acquisitions worth almost $2.8 billion in the past 15 years. The company focuses on the inorganic route to establish a foothold in new geographic markets, gain new technology, or expand its footprint in regions where it already operates. Heartland would be its biggest takeover to date.
Presently, Global Payments and Heartland both sport a Zacks Rank #2 (Buy). Other stocks in the same space that are worth a look now include Ingenico Group INGIY and Vantiv, Inc. VNTV, both carrying a Zacks Rank #1 (Strong Buy).
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