Doing Deals in a Market in Transition

The payments business has never been easy. Mastering the prime factors at play in today’s complex M&A climate is harder—but essential.

Credit conditions are improving, regulatory clarity has emerged around stablecoins, and the ever-important significance of scale in payments is prompting both strategic and financial buyers back into the market, helping make deals more likely and possibly more affordable.

“Who is willing to lend and at what cost typically has the greatest impact on the availability of credit,” says Sam Wares, director of client success at TSG, an Omaha, Neb.-based payments advisory firm. “That is certainly the case today.”

“Interest rates, [that is,] borrowing costs, have eased a bit compared to 2023 and early 2024,” Wares continues. “Dry powder amongst private equity remains high, and thus supported the growing trend of non-bank lending to fund acquisitions. What has changed to spark activity is the return of traditional banks to M&A lending in 2025.” “Dry powder” refers to capital committed to private investment firms that is not yet allocated, according to WallStreetPrep.com.

And, almost a full year into President Trump’s second term, questions about federal policy impact on credit are more resolved than was the case six months ago.

“One of the key issues affecting credit has been uncertain Federal Reserve policy, along with general economic uncertainty regarding tariffs and potential inflationary effects” says Marcus Bodet, cofounder of B.I.G. Capital, a private investment firm that specifically invests and acquires tech and software companies, often in the payments sector.

“However, recent Fed rate cuts, as well as generally strong market dynamics despite costs, has created a relatively healthy credit market for deals. We have seen competition to extend credit for quality deals,” Bodet adds.

The convergence of technology shifts also is altering the outlook for payments M&A activity. Stablecoins, thanks in part to the 2025 passage of the GENIUS Act—law that provides a legal structure for stablecoins along with better consumer protections for their use—also are a growing part of the payments ecosystem, especially for cross-border payments.

Acquisition Dynamics

Other factors are at play, too. Independent software vendors, known as ISVs, are gaining control of the merchant relationship, which is changing acquisition dynamics.

“Stablecoins and the increasing prevalence of ISVs monetizing payments top my list. Recent legislation has jolted stablecoin usage, but that is happening at the same time the market is figuring out how to ensure proper compliance in that area,” Wares says.

“I mention ISVs because of the growth in merchant portfolios where the relationships are owned by ISVs,” he continues. “The unique aspect is that ISVs are much less willing to sell their portfolios than what the payments industry has experienced in the last 15 years from [independent sales organizations] and agents. It makes sense based on the nature of their business, but may not be as obvious to those who aren’t ingrained in the industry.”

The third leg of the payments stool—consumers—also is a factor. The growth of buy now, pay later options is especially pertinent because it’s very attractive to consumers less than 40 years old, says Sean Gelles, senior director of payments intelligence at J.D. Power, a Troy, Mich.-based analytics firm.

Buy now, pay later is embedded in wallets from Apple, Google, PayPal, and Samsung, Gelles says. And fintechs, credit unions, and some major banks offer installment payments for their debit card customers. “It’s not a fad,” Gelles says. “It’s how the next generation buys on credit.”

As for who is buying what these days, Bodet says independent sales organizations, especially those in niche verticals, are attractive prospects. So are established, larger ISOs that have integrated cryptocurrency payment technology.

Companies already acquisitive in recent years likely will continue to be so, says Wares. “Large processors/acquirers like Global Payments Inc., Fiserv Inc., and Shift4 Payments Inc. are examples, along with those growing like Payroc and Nuvei Corp., the latter of which recently moved back to being a private firm, which allows for more flexibility on the M&A front. The card networks have been major players in M&A in recent years, and that is not likely to stop,” Wares says.

Building Scale

At Jack Henry & Associates Inc., a core processor and payments technology company, embedded payments and stablecoins are segments that will allow buyers to break into new markets, says Erica Pilon, head of corporate strategy at Monett, Mo.-based Jack Henry.

“If buyers are looking at augmenting existing markets, there are interesting opportunities in automated fraud prevention and AI. Moving forward, financial institutions also need to be sure they’re adequately prepared for advances in faster payment technology. Specifically, they should be preparing to both send and receive transactions, in anticipation of where the industry is headed,” Pilon says.

With building scale in payments a constant aspiration, buying competitors or investors rolling up several organizations into larger ones remain one tactic. No matter how they go about it, certain thresholds have to be met.

“Financing is readily available for acquisition purposes, but lenders are requiring a greater amount of transparency and compliance,” Paul Cheetham, chief executive and lead broker at Vanla Group, a Laguna Niguel, Calif.-based company that bills itself as a private network for strategic M&A transactions.

But where are these investors looking? Which payment segments might be more attractive than others?

Bodet champions ISOs as prime opportunities, which is B.I.G. Capital’s strongest sector as opposed to direct technology providers, he says.

“From an ISO standpoint, we are looking for companies with strong merchant penetration in niche vertical markets. We see these companies trading between 9x and 13x EBITDA, depending on factors such as size and merchant retention,” says Bodet. EBITDA is earnings before interest, taxes, depreciation, and amortization and is an often-used comparison metric.

The Ideal Targets

Still, “the hottest acquisition target in payments has been and will continue to be merchant portfolios,” says Wares. “However, these have become difficult to find, and that will only get more difficult as software and payments evolve together. While payments M&A has leaned toward a buyer’s market in recent years, the one exception is a merchant portfolio that consists primarily of low-risk merchants with a strong sales channel. Those drive a premium due to scarcity and the multitude of benefits provided to the buyer.”

Adding to that, Cheetham says, “The best acquisition targets have dynamic systems, and large transaction volume. Smaller regional providers can be nimble with less red tape with faster integration capabilities.”

Buyers are looking for scalability, he says. “The EBITDA multiples are higher for businesses that have shown historical high growth rates [versus] the mature behemoths. To be acquired, companies should focus on low churn rates and a modern tech stack.”

Cheetham points to companies heavily concentrated in specialized, defensible technologies like embedded and integrated payments, business-to-business, cross-border platforms, real-time payments, and risk mitigation as potential targets for investors.

“Beyond a merchant portfolio, key acquisition targets will be firms [that] can expand upon a suite of services offered (i.e. risk mitigation, shopping cart experience, AI enhancements, etc.) or those that expand the buyer’s geographic reach,” Wares adds.

“Other targets that will be on the buyers’ radar are embedded finance and open-banking solutions (which enable payments in non-financial apps),” he says.

Wares agrees that business-to-business payments is an attractive market now. “Areas we’ve seen in the last two years will remain at the top of the list—[payment service providers] or anything with a merchant portfolio, fraud prevention, and embedded finance), but what stands out is B2B,” he says.

“The market sees the untapped potential in B2B payments and many deals we’ve seen as of late at TSG are in this area. More specifically, we’ve seen a heightened interest in the monetization of payments in utilities in the latter portion of this year,” Wares adds.

Four Vital Themes

Diving deeper into specific characteristics, Wares outlines four themes as vital. “The era of growth-at-any-price is firmly in the rearview [mirror], as buyers have shifted their focus to profitability and fundamentals,” he says. These are recurring revenue and transaction volume, profitability and operational efficiency, regulatory and compliance strength, and customer base and market position.

Recurring-revenue generators are always a prime factor in payments M&A because payments companies typically get this revenue with every card swipe or payment. “This yields highly predictable, recurring revenue streams, which buyers love. A target that processes large transaction volumes (and can grow those volumes) offers stable and scalable income,” Wares says.

But plenty of recurring revenue alone isn’t enough. Potential acquisitions need what Wares calls healthy margins or clear paths to profitability. “Cash-flow positive, EBITDA-generative payment firms are in high demand, whereas cash-burning startups face more tempered interest unless they have unique assets,” he says.

Sound regulatory practices and compliance are another element. “The payments industry is heavily regulated, so companies that already possess necessary licenses in what would be new markets to buyers are attractive,” says Wares. “These deals afford the buyer a much quicker entry into a new market while avoiding what can be a long and arduous process of obtaining licenses themselves.”

The last factor is the company’s customer base and market position. Wares says this factor is not the newest piece in the puzzle of evaluating potential acquisitions, and buyers will continue to seek companies with customer bases that complement or expand on an existing base.

“Market positioning remains prevalent, and deals will still aim to enter new markets whether both from geographic and vertical perspectives,” he says.

‘A Key Strategy’

What’s changed in the last several months is that it may now be quicker to achieve a goal via acquisition instead of spending resources on an internal build. And the improved cost of capital may support valuations.

“Payments is a fast-paced industry, and M&A has been a lever often used to capitalize on opportunities and growth more quickly than [is possible through] internal development,” Wares says.

“The fact that the current economic environment is more favorable has unlocked a surge to expand through M&A,” he adds. “Again, it sounds simplistic, but compared to conditions in recent years, the greater clarity from a regulatory perspective and ease on interest rates have created better conditions for deals to be made.”

Wares adds that interest rates and an inflation rate under control will be the primary factors impacting credit availability and affordability for payments deals. “The current consensus is that rates will move slightly lower, or it’s possible that they’ve plateaued,” he says. “These conditions would mean that the cost of capital should either maintain current levels or improve, which would support M&A affordability.”

Bodet says interest in payments M&A deals is coming from multiple channels. “We see significant interest in funding in the payments space from all categories, including traditional senior debt providers, non-traditional debt providers, [and] mezzanine and co-equity players,” he says.

Overall, consolidation in payments is still strong, and buyers are cherishing selectivity over casting a wide net.

“It’s difficult to say, but most of what I’ve read and heard project an optimistic outlook for the next 12 [to]18 months,” Wares says. “Macro factors fluctuate more often nowadays, so there may be some waves of activity, both up and down, during this period.”

Still, he says, “ultimately, M&A will remain a key strategy in the payments sector’s evolution, as companies seek to position themselves in an increasingly digital, integrated, and global market for payments.”