Payments sector heats up across the Nordic region

Just days after VC-backed iZettle announced its intention to float on the Stockholm Exchange, US-based PayPal bought the Swedish payments services company in a $2.2bn deal. The announcement may have left some Stockholm investors disappointed, but it highlighted the strength of the exit opportunities in the payments market.

iZettle first announced it was exploring exit options in January 2017, a day after completing a €60m series-D. It prompted interest among private equity and trade buyers alike, and exit rumours cemented more firmly when iZettle said it was gearing up to float in May this year. Meanwhile, the wider market projected hopes of a revived European tech public market, which was off to a promising start in 2018 when Avast floated for £2.4bn on the London stock exchange.

The last-minute $2.2bn offer by PayPal sealed a lucrative trade deal for the company. The situation is not an unfamiliar one in the Nordic payment sector landscape. As with Ingenico, following its acquisition of Bambora last year, PayPal could seek to expand its integrated service offering.

"iZettle has to date focused on micro-merchants, so it will be interesting to see if PayPal will change the focus of its core market," says Nordic Capital partner Fredrik Näslund.

The Nordic region has been home to many recent big deals in the payments industry. Nordic Capital sold Bambora to Ingenico Group for an enterprise value of €1.5bn in July 2017. In September 2016, Bain Capital Europe and Advent International's Nets was valued at DKK 30bn on its introduction to Nasdaq Copenhagen – the largest Nordic private-equity-backed listing for six years, according to Unquote Data. Most recently, Bridgepoint generated a return of 8.8x money and an IRR of 103% on its investment in Swedish payment technology company Trustly, following a sale to Nordic Capital in March. And VC-backed online-shopping-focused Klarna could be next in line for an IPO.

Cashing in on cashless
A high adoption of cashless transactions in the Nordic region has contributed to the growth of payment-service startups. According to research by Forex Bonuses, Sweden ranks as the second most cashless country in the world, behind Canada. The research found that 59% of consumer transactions were conducted without cash.

In addition, the EU regulation PSD2 opens up the infrastructure for online payment providers, meaning banks cannot prevent niche players such as Trustly, which provides account-to-account payments, from accessing bank accounts.

"The EU is taking out waste from the payment process to slash costs," says Näslund.

iZettle has to date focused on micro-merchants, so it will be interesting to see if PayPal will change the focus of its core market" – Fredrik Näslund, Nordic Capital

Further afield, pan-European counterparts in the payments sector have also been busy. In May, French in-store payment service Worldline acquired Swiss stock market operator Six Group's payments units for €2.3bn. UK-based Worldpay was listed on the London stock exchange in January 2018 after a £9.3bn merger with US-based Vantiv. Meanwhile, Amsterdam-headquartered online payment service Adyen is reportedly exploring exit routes. Not surprisingly, these cases have generated discussions around consolidation in the sector.

Says Näslund: "We are seeing significant consolidation in the payments sector." In-store payment providers, such as Worldline and Wirecard, have seen some of the biggest mergers. In March, Wirecard's executive vice-president of consumer solutions, told Unquote sister publication Mergermarket he expected consolidation to be dominated by private equity groups such as Advent International and Bain Capital.

Indeed, the two have teamed up to buy several payment companies in Europe, paying a reported €700m for Concardis in 2017, and €2.15bn for Istituto Centrale delle Banche Popolari Italiane in 2015, for which it bolted on Setefi Services and Intesa Sanpaolo Card from Intesa Sanpaolo for €1bn in 2016.

The Nordic payments sector is one to watch for both private equity investors and trade buyers alike. In addition, European stock exchanges could see high-profile listings by Nordic contenders on the lookout for a public market exit option. But with the sector in high demand from financial buyers with cash to offer, consolidation plays are likely to progress.

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