As Its ACH Traffic Climbs Rapidly, Paya Manages a ‘Very Strong’ M&A Pipeline

Payments on the automated clearing house network  have been gliding upward for some time, allowing processors that handle ACH volume to tap into that growth. On Monday, Paya Holdings Inc. showed it’s among the beneficiaries.

ACH volume for Atlanta-based Paya reached $3.5 billion in last year’s fourth quarter, up fully 46% from the first quarter, the company reported. That means ACH business now accounts for nearly 40% of Paya’s volume, up from a 32% share in the first quarter of 2020. Card activity, at $5.7 billion, made up the remainder of the company’s $9.2 billion in total dollar volume for the December quarter.

Much of that ACH momentum stems from what Jeff Hack, Paya’s chief executive, termed “the largest [client] win in Paya’s history” during a conference call to discuss the company’s fourth-quarter results. And the growth flowing from the signing of the unnamed client apparently has room to run, according to Glenn Renzulli, chief financial officer. “The first quarter will see some benefit from this full ACH conversion,” he told equity analysts on the call.

Paya, whose clients include government entities, health-care providers, non-profits, and educational institutions, is also clearly relying on an active acquisition strategy. “The M&A pipeline looks very strong,” said chief executive Jeff Hack, without going into details. “There are a lot of great smaller businesses out there that need to be part of a company like Paya.”

The company’s acquisitiveness stems from the economies of scale additional volume can bring, along with the urge to build out vertical markets. One of Paya’s latest deals was for The Payment Group (TPG), which expanded the company’s reach in the market for processing transactions for city services. “We were already strong in municipalities, but TPG brought us a big opportunity,” Hack said.

“We pursue opportunities in each of the verticals,” Hack added. “We pursue all the sectors that make sense for us enthusiastically.”

Paya’s momentum among potential clients and in M&A got a jolt last fall when it went public via a merger with a so-called blank-check company, Fintech Acquisition Corp. III, according to Hack. These mergers, which are becoming more numerous in payments, allow privately held firms to avoid a traditional public offering by undergoing an acquisition by a special purpose acquisition company, or SPAC, that has already become a public entity. “Being a public company has been a very clear positive for Paya,” said Hack. 

Paya’s business supports transaction processing directly but also through integrations with software developers, known as independent software vendors, or ISVs. The ISV segment, however, is both larger and more profitable for Paya. In the fourth quarter, it generated $32.4 million in revenue, with gross profit of $17.3 million. By contrast, the payment-services side of the business produced revenue of $21.6 million, with $10 million in profit, according to numbers released Monday.

For the quarter, Paya registered $54 million in revenue, up 5% year-over-year. For the year, revenue totaled $206 million, up slightly from 2019. The company trimmed its net loss to $500,000 from $9 million in 2019.