How Tighter Money And Longer Diligence Have Slowed a Once ‘Frothy’ M&A Market

A sort of disequilibrium has set in in payments mergers and acquisitions, leading to fewer deals and stretched out times to conclude the deals that do close, according to M&A experts who spoke this week at the Electronic Transactions Association’s Transact conference in Atlanta.

The new dispensation contrasts sharply with the payments M&A market of recent times. “Twelve to 15 months ago, we had a really frothy market. Today, it’s less of a good time,” said Zach Sadek, a partner at Boston-based Parthenon Capital. Sadek was joined in a panel discussion moderated by Paul Friday, managing director at New York City-based Keefe, Bruyette & Woods Inc., by Chris Baugher, a partner at international law firm Alston & Bird.

Would-be buyers have tightened their wallets, while due-diligence periods have been stretched, compared to a year and more ago, the speakers said. That has swung the balance of power in negotiations to the buyer, they added. “Buyers and sellers have not quite reached equilibrium. Sellers have clung to a valuation they received in 2021,” noted Baugher, a partner at the international law firm Alston & Bird.

“In general, people aren’t throwing money around the way they were two to three years ago,” Sadek said, though he added that, while deal terms have soured for sellers, “I don’t think they’re historically oppressive.”

Last year and the months leading into 2023 have not been without major transactions. One of the headline deals was Global Payments Inc.’s $4-billlion acquisition of EVO Payments, announced last year with a late March closing. All told, there was a record 1,035 transactions in the global payments and fintech market in 2021, a pace that had slowed to 769 in the first 11 months of last year, according to data from the investment bank Capstone Partners.

Part of the slowdown stems from added caution on the part of would-be buyers, who are asking more probing questions and demanding more data. That has led to longer due-diligence periods, the panel said. “The rigor has definitely increased,” Baugher said. “There are more questions asked now.”

“In general, the diligence period is really long,” agreed Sadek. “It can be as quick as 60 days but often takes longer than that. The antitrust approval is difficult.” That approval, indeed, often stretches beyond 30 days now, he said. “Buyers are going to be dispassionate. They’re going to be clinical,” Sadek said in advising audience members who may be contemplating a deal. “This is an uncertain world we’re living in. We’re at an inflection point in terms of interest rates.”

“It’s a time to be pretty cautious,” if you’re a buyer, added Baugher.

An added problem is availability of funding, which the panel agreed is not flowing as freely as it did only a year ago. That problem will only worsen, according to the panel. “Capital is going to be really scarce,” Sadek predicted.

Still, while deal terms have tightened and diligence periods have stretched out, the panel remains optimistic as digital methods steadily displace traditional payments flows. “I’m still pretty bullish on what the future looks like,” said Baugher. “Cash is not going to make a comeback. Checks are not going to make a comeback.”