Optimal Payments (LSE: OPAY) has announced a transformational this morning to buy the maker of the Skrill e-wallet, the biggest competitor to its Neteller business. The total value of the deal is £801m and will be funded with cash, new debt facilities and a fully underwritten rights issue for about £451m.
This deal will double the size of Optimal almost overnight and allow the company to grab a large chunk of the European online payments market. The Skrill Group operates one of the largest pre-paid online voucher providers in Europe with its paysafecard brand.
What’s more, Optimal is buying Skrill at a relatively attractive valuation. Indeed, The Skill Group reported a core profit of $89m or €82m for the year ended September, implying that Optimal is paying 13.4 times historic earnings for the company.
The deal is expected to close during the third quarter of 2105 and will immediately boost earnings per share.
But will Optimal’s expansion plans make life harder for the company’s peer, Monitise (LSE: MONI)?
Different sectors
Monitise and Optimal operate in different sectors of the mobile money economy. Optimal’s existing Neteller business provides a service for the gaming market, while Monitise’s offering targets larger corporate customers, such as banks and telecoms giant Telefonica. So in theory, the two companies shouldn’t come to blows after this deal.
However, now that Optimal and Skrill are planning on joining forces, Optimal could start to encroach on Monitise’s turf.
Still, Monitise has worked hard to build a solid reputation with some of Europe’s largest banks over the past few years, along with other corporate giants such as IBM. These key customers are unlikely to desert the company any time soon.
What’s more, if Optimal really wanted to get into the same area of payments processing as Monitise, Optimal could have acquired Monitise. With a market value of £400m at present, it would have been cheaper for Optimal to acquire Monitise over Skill.
The fact that Optimal chose to pay more to acquire Skill, indicates that Optimal’s management is more interested consumer payments processing market, rather than working with big institutions, the path Monitise has taken.
For the time being then, Optimal and Monitise’s business models will keep the two from fighting over customers. Although this could quickly change if Optimal uses its new customer base, acquired through Skrill, to apply pressure to Monitise.
Looking for growth?
All in all, Optimal’s deal to acquire Skill will be a game-changing deal for the company, transforming it into one of Europe’s largest payment processors. And for the time being, this deal should have little effect on Monitise’s growth.