MoneyGram, which has finally found a buyer after more than half a decade on the market, could find itself operating more like a fintech under private ownership than it is able to as a public company.
"Public companies find it difficult to invest in new tech because they need to meet financial growth plans for stockholders," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group in Concord, Massachusetts. Remittance companies have a heavier regulatory burden and more overhead than companies that primarily support digital payments, he said.
The Dallas-based MoneyGram on Tuesday announced it has agreed to be
"Stockholders tend to react negatively to a quarterly loss even if it was to fund a new business opportunity. Going private takes that pressure off and may also get funding for the company," Sloane said.
MoneyGram was already undergoing a
"The pandemic has accelerated the need to be more digital," said Gareth Lodge, a senior analyst at Celent in London. In particular, the cross-border payments market has become significantly more competitive over the last five years, and digitization can make it easier to compete globally, Lodge said.
"A move to digital makes sense in that almost every unbanked person has a mobile phone. The focus is increasingly on how to get money in and out of the phone," Lodge said.
MoneyGram's digital strategy has prompted moves such as a partnership with the cryptocurrency exchange
MoneyGram's traditional business model is also under pressure, following Walmart's recent deal to allow
"Suppose MoneyGram wants to cultivate a digital partner it believes will generate enormous growth long-term, but in the short term will cannibalize [its] more profitable cash-to-cash business," said Eric Grover, a principal at Intrepid Ventures in Minden, Nevada. "It might be difficult to go … down that path as a public company."
The Madison Dearborn Partners deal follows a 2017 attempt by Ant to acquire MoneyGram that fell through under
The Chicago-based
MoneyGram did not return a request for comment by deadline and MDP would not comment. "By partnering with MDP and becoming a private company, we will have greater opportunities to innovate and transform MoneyGram," MoneyGram Chairman and CEO Alex Holmes said in a press release.
Capital from MDP could allow MoneyGram to modernize its infrastructure and network, said Steve Murphy, director of the commercial and enterprise payments advisory service at Mercator in New York. That would mean a likely move away from the traditional correspondent banking model and updating for ISO 20022, a
MoneyGram's management structure and Dallas headquarters are expected to remain intact following the MDP deal, which is expected to close in the fourth quarter but also includes a 30-day "go shop" period during which MoneyGram could solicit a better price.
"Money transmitters that invest more and move faster in their digital asset readiness will gain share over the next five years," said Alenka Grealish, research lead on emerging technology for Celent in Portland, Oregon.