The EML Payments Ltd (ASX: EML) share price has surged as much as 71.58% today after the company's shares were reinstated from a trading halt following the release of an announcement to the ASX.
Why is the EML share price rocketing today?
EML released an announcement informing the market that the company has renegotiated terms for its acquisition of Prepaid Financial Services in Ireland. As part of the renegotiation, EML slashed the upfront enterprise valuation by around $189.1 million.
With this, the upfront valuation of Prepaid Financial Services has been reduced to £131.5 million, down from a previous valuation of £226 million. As part of the acquisition, EML will be making an upfront cash payment of £85 million (approximately $159 million) from its cash reserves and providing equity of 23.2 million shares, worth £21.5 million ($43.2 million).
As part of the transaction, the vendors will own approximately 8.2% of outstanding EML shares, which will be held in voluntary escrow until April 2021.
EML requested a trading halt to be placed on its shares yesterday, pending the release of this announcement.
Why is EML making an acquisition?
EML has traditionally operated by providing technology for payouts, gifts, rewards and supplier payments. The company already has a large presence in Australia, North America and Europe, issuing mobile, virtual and physical card solutions.
EML announced its intentions late last year to acquire Prepaid Financial Services. As part of the strategic rationale, the acquisition will allow the company to enter the emerging field of banking as a service (BaaS).
The acquisition provides EML with a range of digital banking services such as the ability to issue e-wallets, payment programmes and software for transactional banking services. By acquiring Prepaid Financial Services, EML is also given access to 8 additional European markets including Greece, Hungary and Slovenia.
In addition to digital banking services, the acquisition will allow EML to strengthen its vertical integration ability, allowing the company to sell a multi-currency travel card and expand its currency offering.
Foolish takeaway
EML has been a market darling, with the EML share price surging more than 203% in 2019. The EML share price has followed the rest of the market in 2020 and has been sold off from its all-time high of $5.70, hitting a low of $1.21.
After being reinstated, EML shares opened at $2.70 today before surging to a high of $3.20. At the time of writing, the EML share price is trading 42.63% higher for the day at $2.66.
