Saturday , February 24, 2024

Paya Looks to M&A, ISVs, And ACH for Growth As It Reports a Strong First Quarter

Paya Holdings Inc. hasn’t let up on its search for growth via acquisitions as it plays to its strengths in integrated payments and automated clearing house processing. 

The Reston, Va.-based company reported early Friday a record-high $10.7 billion in payment volume for the first quarter, a number that doesn’t include its deal for Paragon Payment Systems, which closed in April.

Under chief executive Jeff Hack, Paya clearly has further acquisitions in mind. “M&A is a powerful complement to our organic growth profile,” he told equity analysts listening in on the company’s presentation of first-quarter results.

Hack: There is “a level of understanding with our software partners that they should be offering an ACH option.”

Some of that growth stems from Paya’s continued development of the ACH branch of its payments capabilities on Paya Connect, its proprietary card and ACH payment platform. With its strengths in processing for specialty markets like municipalities and nonprofits, Paya reported ACH volume of $4.1 billion in the quarter, up fully 64% year-over-year, while ACH transactions rose 31%. The payment method now accounts for almost 40% of Paya’s overall volume, up from nearly one-third a year ago.

With this growing base in ACH, Hack said Paya is working to instill in its independent software vendor partners—the entities that install payments capability in operating software for merchants and other vendors—the urgency of adopting the payment method. “It’s a level of understanding with our software partners that they should be offering an ACH option,” Hack said. “We see that as offering growth potential.”

Among ACH’s benefits is that the network connects virtually every bank in the country at relatively low cost. And while it’s processing time is still slower than with debit and credit cards, it is speeding up as the network has moved toward same-day clearing. Even so, Hack cautioned, “an understanding of what ACH can offer may not be fully appreciated.”

As for potential acquisitions, Hack said Paya is looking at “both larger transaction opportunities as well as tuck-ins.” The latter targets, though generally small and less expensive, must “meet a higher bar,” Hack added. In that sense, he said, their potential must be such they can convince the company they can grow faster as part of Paya than on their own.

Recent acquisitions have either added to or complemented Paya’s position in key verticals. Paragon specializes in health-care and nonprofits. It also offers further opportunities with its work with key ISVs, company officials said. Another example, The Payment Group, acquired in September, processes for utilities and government entities.

Generally, Paya focuses on market segments where electronic payments acceptance is under-penetrated and where it has developed differentiated product and software partnerships. Last year, Paya went public via a deal with a so-called SPAC, or special purpose acquisition company. On Thursday’s call, Hack said Paya was “proud” to have been added to the Russell 2000 Index during the quarter. At mid-morning Thursday, its stock was trading just over $11 per share, down nearly 18% since the start of the year.

For the quarter, Paya reported revenue of $63.9 million, a 25% rise from $51.1 million in the same quarter last year.

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