EML Payments (ASX:EML) share price jumps to record high on acquisition news

The EML Payments Ltd (ASX:EML) share price is charging higher after announcing a major acquisition this morning…

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The EML Payments Ltd (ASX: EML) share price is charging higher on Wednesday following the announcement of a major acquisition.

In morning trade, the payments company’s shares are up 12% to a record high of $5.75.

What did EML Payments announce?

EML Payments has entered into a binding share purchase agreement to acquire 100% of Sentenial Limited and its wholly owned subsidiaries. This includes its open banking product, Nuapay.

According to the release, the two parties have agreed an upfront enterprise value of 70 million euros (A$108.6 million), plus an earn-out component of up to 40 million euros (A$62.1 million). This will be funded by a combination of 38.9 million euros in cash and 31.1 million in EML Payments shares.

What is Sentenial?

Sentenial is a leading European Open Banking and Account-to-Account (A2A) payments provider, utilising a cloud-native, API-first, full stack enterprise grade payment platform.

The release notes that it has an attractive customer base across banking, corporate, and software industries. This includes 4 of the top 7 banks in the United Kingdom and some of the largest merchant acquirers in Europe.

Its Nuapay business is one of only a few Open Banking products in the marketplace. It provides merchants and payment service providers with a feature rich Open Banking solution, including interwoven money movement capabilities, reconciliation, and batch settlement of transactions.

Why acquire Sentenial?

The company sees the combination of the EML and Nuapay platforms and capabilities as an opportunity to deepen customer relationships, enter new industry verticals, and diversify its revenue streams.

Management also notes that the acquisition broadens the company’s payment offerings to include alternate (non-card, non-scheme) payment products to its platform. This addresses customer demand and complements card scheme-based payments.

Another positive is that Sentenial has a highly scalable platform that has had continual investment to future proof the business and allow for agile deployments and rapid growth. In light of this, EML Payments believes it is well positioned to export the technology globally and has plans to leverage the Sentenial platform into Australia and North America within the next 12-18 months.

Once the acquisition completes, the combined group is expected to process in excess of A$90 billion in Gross Debit Volume (GDV) in FY 2022.

Management commentary

EML’s Managing Director & Group CEO, Tom Cregan, said: “EML has transitioned over the years from primarily a gift-card company to a company with a diverse revenue base across multiple prepaid products. The acquisition of Sentenial will be the next evolution for EML, as we transition into a broader payments business by adding instant account-to-account (Open Banking) payments into our suite of solutions for current and prospective customers.”

“EML supports thousands of prepaid programmes globally, and our platform is how our customers interact with us. Sentenial operates an enterprise-grade payments platform processing over 45 billion Euro per annum, and it’s, therefore, a similar business to EML but servicing a different customer set with different payment types. The net result of bringing the companies together allows EML to increase our Total Addressable Market by expanding our product suite, and we see a number of opportunities to cross-sell Account to Account payments into existing EML customers, and vice versa.”

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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