In an attempt to accelerate its advisory and analytics business, MasterCard Inc. MA intends to buy Applied Predictive Technologies (APT) in a $600 million deal that is expected to culminate by Jun 2015, subject to approvals and pricing modifications.
APT is a global cloud-based analytics software provider that facilitates firms by gauging and standardizing chief business components such as pricing, marketing, operations, capital and merchandising, thereby helping these companies maximize investment returns and earnings.
APT’s network functions on multi-channel platforms and supports an array of extensively recognized operating protocols, thereby benefiting from the large scale and accessibility of its services. Most of the firm’s clients are part of Fortune 100 companies across varied industries. APT has offices across the U.S., U.K., Taiwan, Japan and Australia.
Post-acquisition, APT will be added to MasterCard’s professional services wing, MasterCard Advisors. Inclusion of APT blends well with the company’s Nov 2014 acquisition of London-based consultancy firm – 5one Marketing Ltd. – for analytics and proprietary payments software that processes unique insights and decision-making resources from client data.
The Diversification Strategy
We believe that such acquisitions will accelerate MasterCard’s core processing capabilities in an increasingly complex payments environment. It also reflects the company’s endeavors to adapt to emerging industry trends and shore up competitive leverage against arch-rivals like Visa Inc. V, American Express Co. AXP and Discover Financial Services DFS.
Moreover, given the challenging regulatory and operating environment within MasterCard’s core card business, diversification into ancillary services, while also offering a secure digital payment experience, appears to be a good investment idea to brighten long-term growth prospects.
Although MasterCard has not revealed its mode of funding, the acquisition appears viable on financial basis given an operating cash flow of about $3.4 billion and cash of $5.14 billion at 2014-end, along with unused credit facilities. However, raising additional debt for the acquisition may affect financial leverage adversely.
Furthermore, APT’s acquisition itself will beat MasterCard’s spending on acquisitions this year. MasterCard had culminated eight acquisitions in 2014 for a total of $575 million, while no acquisitions were executed in 2013. The company’s acquisitions contributed 2% to revenues in 2014.
MasterCard currently carries a Zacks Rank #3 (Hold), and is slated to release its first-quarter 2015 earnings results before the opening bell on Apr 29, 2015.
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