Global Payments' migration away from noncore products is accelerating as the payment company looks to supercharge a restructuring that initially fell flat with investors.
The company on Wednesday said it would sell AdvancedMD, a medical software firm, to Francisco Partners for $1.13 billion, and use part of the proceeds to fund a $600 million accelerated stock buyback plan. Global Payments initially acquired AdvancedMD for $700 million in 2018.
Investors cheered the move, as Global Payments' stock jumped nearly 5% on Wednesday, a far cry from the 7% dip that followed the firm's investor presentation in September.
Global Payments is changing how it develops and sells products. It is also stressing its original strategy of enabling small businesses to adopt new payment technology. With the payments industry emerging from an
"We lost a little focus and tried to be all things to all people," said Cameron Bready, Global Payments CEO, in an interview ahead of the company's third-quarter earnings report and announced sale of AdvancedMD.
Financial performance
Global Payments on Wednesday reported $2.36 billion in revenue for the quarter ending September 30, up 5.6% from the prior year, and earnings per share of $3.08, up from $2.75 the prior year. That was slightly off Zacks' consensus estimates of $2.38 billion and $3.11. Health care has extensive regulatory and specific technology challenges that make it harder to integrate with other parts of Global Payments' business, Bready said in explaining the AdvancedMD sales during Wednesday's earnings call, adding that Global Payments' five-year-old
Analysts praised the AdvancedMD deal, with JPMorgan Chase saying it "didn't consider AdvancedMD a priority asset," and William Blair saying the disposition "sharpens focus, reduces exposure to the challenging health care market and generates capital."
Traditional payments consolidators have relied heavily on M&A to grow, enrich their suite of products and extend their delivery footprints. They are also not as nimble and don't generate the same organic growth as newer processors like Block, Stripe and Adyen, according to Eric Grover, a principal at Intrepid Ventures.
Global Payments competes with fintechs by offering hands-on service for clients that still prefer more in-person help, Bready said.
"We do it through direct sales, we have an all-digital channel and self-service, though there's still a segment of the market that wants to talk to a human being," Bready said. "Putting a human touch on it is an advantage for us."
Global Payments, FIS, Fiserv, Nexi and Worldline are all industrial-strength processors with enormous scale, portfolios of related and putatively complementary payment processing and network assets, according to Grover. "Most of them, however, have struggled to realize real revenue synergies. All of them have been burdened with redundant delivery systems, which over time lets them realize operating synergies, but the rationalization often has a high opportunity cost in foregone organic growth," he said.
Turnaround strategy
Global Payments was criticized after an
The company made several changes as part of its restructuring. It created a line of business that focuses on merchant services, rather than different departments that develop and sell products to merchants. It also consolidated all of its technology assets into a global function to simplify product development.
"[Global Payments was] a business that grew organically and through mergers and acquisitions," Bready said. "After a decade of this we took a step back and looked at how we were aligned, and came to the conclusion that this model wasn't going to drive the next decade."
Global Payments is betting its traditional focus on small business will enable growth. The company last year inked a
"There's a huge opportunity in small business," Bready said in an interview, adding Global Payments is pushing cloud-based point of sale software in the segment to enable businesses to upgrade transaction processing by accessing technology remotely. Like Amex, Bready said there is long-term potential to reach small businesses, and any economic recovery would be a welcome tailwind, but not a necessity.
"That doesn't mean we won't pursue middle market and enterprise businesses, but our priority is small business," Bready said. A "recovery" for Global Payments that includes rationalizing and simplifying the business will be worthwhile, Grover said, and strengthening its business outside of the U.S. would also be helpful.
