In a surprising turn of events, Shift4Payments Inc (NYSE:FOUR) witnessed a surge in its stock price following reports that financial giant Global Payments Inc. (NYSE:GPN) is contemplating the acquisition of the payment processing company. While Global Payments denied any discussions, insiders suggest that the company might be exploring the possibility of integrating Shift4 into its portfolio. Shift4Payments has demonstrated a robust financial performance this year with decent quarterly results from time to time and a 37% rise in its stock this year. This latest acquisition buzz isn't Shift4's first dance in the M&A arena. In September, private equity firms were reportedly eyeing Shift4Payments as a takeover target, with Advent emerging as a potential lead bidder. Let us take a closer look at Shift4Payments and evaluate the potential factors responsible for the company becoming an attractive acquisition target.
What Does Shift4Payments Inc Do?
Shift4 Payments, Inc., headquartered in Allentown, Pennsylvania, stands as a prominent provider of comprehensive software and payment processing solutions within the United States. Offering a wide array of services, the company specializes in omni-channel card acceptance and processing solutions, encompassing credit, debit, contactless cards, Europay, Mastercard, Visa, QR Pay, mobile wallets, and alternative payment methods. The suite of offerings extends to merchant acquiring, proprietary omni-channel gateways, integrated and mobile point-of-sale (POS) solutions, as well as security and risk management solutions. Shift4 Payments goes beyond transactional services, providing complementary software integrations, web-store design, hosting, shopping cart management, fulfillment integration, tokenization, payment device management, chargeback management, fraud prevention, and gift card solutions. Noteworthy products in its portfolio include VenueNext, facilitating mobile ordering and self-service kiosk services for stadium and entertainment venues, and Shift4Shop, an eCommerce platform designed to cater to every aspect of online business. The company also boasts Lighthouse, a cloud-based business intelligence tool offering customer engagement, social media management, online reputation management, scheduling, product pricing, reporting, and analytics. With additional offerings like SkyTab POS, SkyTab Mobile, and marketplace technology for third-party integrations, Shift4 Payments has carved a niche in the industry. Beyond its robust service lineup, the company delivers merchant underwriting, onboarding and activation, training, risk management, and support services, emphasizing its commitment to a holistic approach.
SkyTab POS Success & Subscription Revenue Growth
The success of SkyTab POS installations and the resulting higher subscription and other fees in Q3 marks a positive trend that is expected to continue driving Shift4Payments’ revenue growth. With over 8,250 SkyTab POS systems installed in the third quarter alone, including deployments in stadiums such as Amway Center and Paycom Center, the company is capitalizing on the demand for its cost-effective POS solutions. SkyTab POS is gaining traction in the restaurant sector, offering a lower total cost of ownership, resonating well with operators amid a cost-focused environment. Notably, the installations extend beyond restaurants to sportsbook locations and entertainment venues like Truist Arena. The successful promotion and competitive advantages, such as being less than one-third the cost of primary competitors, position Shift4 favorably in the restaurant space. The positive momentum in subscription and other fees from SkyTab POS installations indicates a sustainable growth avenue, aligning with the company's commitment to effective capital allocation and organic investments.
Strategic M&A & Synergy-Rich Acquisitions
Shift4's disciplined approach to strategic mergers and acquisitions (M&A) and its ability to extract synergies from acquired assets form another critical driver for future stock performance. The recent acquisition of Appetize in the sports and entertainment vertical is highlighted as a case in point. The deal strategically enhances Shift4's market share in high-profile venues like Fenway Park, Yankee Stadium, and Madison Square Garden. The company emphasizes its unique ability to identify differentiated technology assets, underwrite cross-sell synergies, and leverage acquisitions to accelerate net new wins within 24 months. Shift4's M&A success is showcased by its track record, citing examples such as VenueNext and Focus POS. The acquisition strategy is backed by careful consideration of prices, with an emphasis on financial deleveraging. The shift from selling hardware and software to a payments-centric model in acquisitions like Appetize underscores the company's adaptability and focus on unlocking embedded payments opportunities. As Shift4 continues to navigate the evolving landscape of software and payments convergence, its strategic M&A approach remains a key driver for sustained growth and competitive differentiation.
International Expansion & Finaro Acquisition
Shift4's successful international expansion and the completion of the Finaro acquisition represent a significant factor responsible for it becoming an M&A target. The acquisition, finalized on October 26, has already shown promise in unlocking material revenue synergies during the extended regulatory approval process. Despite Q3 not benefiting from Finaro or Appetize contributions, Shift4 achieved impressive results, including a 36% growth in end-to-end payment volume, 23% growth in gross revenue, 34% growth in gross profit, and 24% growth in gross revenue less network fees. The acquisition provides Shift4 with a broader geographic coverage in Eastern Europe, considerable card processing capabilities, and approximately one-third of Finaro's net revenue coming from existing Shift4 customers. This strategic move positions Shift4 to board over 10,000 restaurants and hotels in Europe and Canada in the upcoming year. The company is optimistic about the potential of Finaro, with a clear focus on international growth, and the recent regulatory approval signals the beginning of a new chapter in its international expansion plan.
Source: Yahoo Finance
As we can see above, Shift4’s stock has witnessed a strong jump since the news regarding the potential acquisition came out. The company’s stock has seen a 37% rise in its stock this year, outpacing Global Payments' 28% gain. Interestingly, the news caused Global Payments' stock to dip by 2.6% and the company immediately issued a statement saying that they are not in talks to acquire Shift4. It is important to highlight that Global Payments is a heavyweight in the financial industry, and its interest in Shift4 raises intriguing questions about the potential synergies between the two entities. Despite Global Payments’ denial of pursuing the acquisition, it has been clear from Shift4 CEO Jared Isaacman in his latest letter to shareholders that the company has been exploring a sale and has received interest from many parties. Thus, there is definitely something cooking with the company and it could possibly generate a good premium for M&A speculators.