EMERCHANTS TAKES $47M PLUNGE INTO THE US

Written on the 2 May 2016 by Nick Nichols

EMERCHANTS TAKES $47M PLUNGE INTO THE US

PREPAID card technology group Emerchants (ASX:EML) is stepping up its global business strategy with plans for a $47.6 million US acquisition.

Emerchants has agreed to acquire Store Financial Services in a share-and-scrip deal that will give the Brisbane-based company leverage to the reloadable business in North America, a market it has been exploring for the past six months.

Store Financial Services provides prepaid stored-value programs in the US and Canada, and recently expanded in business-to-business gift card programs, insurance payments and virtual prepaid programs. Among clients in the Store Financial Services portfolio are Lenovo, Shell, AT&T and Shell.

The acquisition, to be funded from the proceeds of a $58.5 million placement to institutional investors, is not expected to contribute to Emerchants' bottom line in FY17 due to amortisation expenses.

However, the forecast pro forma EBITDA (earnings before interest, tax, depreciation and amortisation) in FY17 is expected to hit $US3.5 million ($4.6 million). 

Emerchants says the 'compelling strategic rationale' for the acquisition is based on the profitability of Store Financial Services since 2009, its long-term customer relationships and the low concentration risk amongst its customer base.

It also expands Emerchants services to the largest prepaid market in the world, worth an estimated $US715 billion a year.

The latest deal comes on the heels of Emerchants announcing in March that it had launched its payment card in the UK through an agreement secured with bookmaking giant bet365.

Emerchants managing director Tom Cregan says the company's expansion strategy over the past 18 months has transformed the group from an Australian-focused operation with $3 million in revenue that is largely generated from one key customer, to a diversified group operating in 11 countries.

He says the company's largest customer now represents no more than 10 to 15 per cent of revenues.

"In that time we have demonstrated that we have been able to seamlessly integrate the UK/EU business and, with the recent announcement of bet365 in the United Kingdom, that we can leverage our technology and solutions to other markets and offer shareholders exposure to markets with significant long term growth," says Cregan.

"We believe this acquisition will generate similar long-term benefits for our shareholders.

"It provides the company with access to the market in the US, the largest prepaid market in the world, and another significant prepaid market in Canada.

"In the process, we will grow the business and diversify the risk profile of the business by operating in 13 countries, in five currencies and where the largest single customer will represent no more than 5 per cent of revenues. 

"The board of Emerchants has established clear approval requirement for acquisitions, notably that they provide an expansion in EBITDA as our most important measure, and that they provide us with access to additional geographic markets and/or access to new technologies that we can translate into other markets.

"The board believes that this acquisition meets those criteria and thus is in approval of the acquisition."

Emerchant's shares, which resumed trading from a two-day trading halt, fell after today's announcement.

The shares lost about 7 per cent to trade at $1.55 for most of the day. However, they remain at a premium to the $1.45 issue price of the share placement to institutional investors.

The US acquisition is scheduled to be completed on June 3.

 


Author: Nick Nichols

Latest News

CROMWELL TRADES STEADILY IN FIRST HALF

CROMWELL Property Group has maintained a steady operating profit at $0.045 per security in the first half of FY17,...

WHY NEXTDC'S STOCK IS SOARING

AFTER posting its interim result, NEXTDC (ASX: NXT) gained more than 12 per cent on the stock market before noon.
...

PWR PROFIT CRASHES AS DOLLAR RISES AND COSTS MOUNT

A RISING Aussie dollar has offset PWR Holdings Limited's (ASX:PWH) overseas growth in the last half, forcing a...

SUPER RETAIL GROUP RESULTS SHINE ACROSS THE BOARD

A WELL-planned and executed half has paid off for Super Retail Group (ASX:SUL) as it posts a net profit result up ...

Related News

EVERYTHING YOU NEED TO KNOW ABOUT THE NATIONAL BROADBAND NETWORK

THE National Broadband Network (NBN) is more than an internet connection, it is an opportunity to transform your b...

WHY EMPLOYEE-OWNED COMPANIES ARE BEATING ASX200 SHARE PRICES

EMPLOYEE-owned companies command a higher share price than their publicly listed peers, reaping a 17 per cent prem...

RISE OF THE MACHINES HAS WORKERS SWEATING

UP TO 3.8 million Australian workers are fearful their job may soon be terminated by a robot, a new survey has shown....

LESS TALK, MORE SMALL BUSINESS ACTION IN 2017

THE future growth and prosperity of Australian SMEs could be undermined if governments lose sight of the sector...

Contact us

Email News Update Sign Up Contact Details
Subscriptions

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter