December 20, 2016
By Jim Daly
After an active 2015 in which such prominent payments-industry firms as processor First Data Corp. and merchant acquirer Square Inc. completed initial public offerings of stock, 2016 saw little IPO activity by payment firms. But 2017 could be a different story, according to an analyst.
Drieling: Multiple variables affect the frequency and volume of IPOs.
The most notable new U.S. payments stock involves the former CardConnect LLC, which was acquired for $350 million in July by FinTech Acquisition Corp. (FNTC), a publicly traded so-called blank-check company whose purpose is to buy other companies. FNTC’s chairwoman was Betsy Z. Cohen, the founder and former chief executive of The Bancorp Inc., a leading prepaid card issuer. FNTC had a $100 million IPO in February 2015. After the acquisition, FNTC renamed itself CardConnect Corp., whose shares now trade on the Nasdaq Stock Market under the ticker symbol CCN.
A big acquirer, TransFirst Holdings Inc., had filed for an IPO but instead sold itself in the spring to processor Total System Services Inc. (TSYS) for $2.35 billion.
The decline in payments IPOs reflects the drop-off in the overall IPO market. Greenwich, Conn.-based Renaissance Capital, which tracks IPOs, pegs U.S. issuance in 2016 at $18.8 billion from 105 deals through Dec. 15, the lowest since 2003. The recent high-water mark was 2014, which saw 275 IPOs generate $85.3 billion. Activity dropped off substantially in 2015, when 170 IPOs raised $30 billion.
The IPO market had looked promising at the start of this year, but then came the stock-market free fall in the first quarter, the United Kingdom’s “Brexit” vote in the second quarter to leave the European Union, and the uncertainties of the U.S. president election, a Renaissance Capital report says. The result was many cancelled IPOs. The little good news was that IPO returns rebounded to 23%, the best in three years.
“IPO windows come in cycles,” Jared Drieling, business intelligence manager at The Strawhecker Group, an Omaha, Neb.-based consulting firm, tells Digital Transactions News. “There’s a lot of different variables.”
Common reasons for IPOs include generating funds for business expansion, enabling existing investors to cash out, and debt reduction. Those factors played varying roles in the IPOs of First Data, which raised $2.56 billion, and Square, which raised about $231 million before underwriting expenses. Last year also saw payment card manufacturer CPI Card Group Inc. complete an IPO, and online-payments leader PayPal Holdings Inc. separated from long-time parent company eBay Inc. On the global market, London-based merchant processor Worldpay completed a $3.32 billion IPO.
In the absence of IPOs, payments companies have continued to raise capital in the private markets. In 2016’s second quarter, payments startups raised more than $560 million in 75 deals, the fourth-highest deal count on record, according to CB Insights.
Few companies are big enough or have the resources to tap the IPO market, says Drieling. But two strong candidates for IPOs in 2017, he says, are San Francisco-based e-commerce specialist Stripe Inc., and Netherlands-based online processor Adyen, which has a San Francisco office and has moved into point-of-sale payments.
Stripe after a recent funding round is now valued at a lofty $9.2 billion. The company so far has obtained about $300 million in financing from investors that include Visa Inc., American Express Co., PayPal co-founders Peter Thiel and Elon Musk, and Sequoia Capital. Adyen, too, has gained a high profile among payments companies and investors.
“They’re getting a lot of money pumped into those companies,” says Drieling. “At some point there needs to be a payout.”
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