The EML Payments Ltd (ASX: EML) share price is up again today after investors had further time to react to the company’s Sentenial acquisition.
What is the Sentenial acquisition?
Yesterday, EML announced it was buying Sentenial Limited and its wholly owned subsidiaries including the open banking product, Nuapay, for an upfront enterprise value of €70 million, plus an earn-out of up to €40 million.
The company explained that the acquisition broadens its offerings to include alternative (non-card, non-scheme) payment products to the platform to address customer demand, complementing its card scheme based payments.
Sentenial has, and continues to develop, a technology platform to be a leading provider of account to account payments across the UK and Europe. Major banking customers include Barclays, Lloyds and Citibank with a bank-grade platform as well as other offerings.
The majority of the business is the provision of direct debt, credit transfers and real-time payments for major European banks with annual volumes of more than €45 billion in the 2020 calendar year. Sentenial provides the offering as a software as a service (SaaS) revenue model with fixed recurring charges for access to the platform, and as such the yield is between 1 to 2 basis points.
Why investors might like the deal
EML has explained a number of reasons why the acquisition makes sense.
After the acquisition has been completed, EML will be a leading global player and one of the largest independent fintech enablers in open banking and prepaid anywhere in the world. The combined group is expected to process more than $90 billion of gross debit volume (GDV) in FY22.
Nuapay is one of only a few open banking products in the marketplace, which provides merchants and payment service providers with a sophisticated solution, including advanced money movement capabilities, reconciliation and batch settlement of transactions.
EML said Sentenial has a highly scalable platform that has had continual investment to future proof the business and allows for agile developments and rapid growth. EML believes it’s well positioned to export the technology globally.
Management highlighted that it’s going to expand Sentenial to other regions in the next 12 to 18 months.
On top of that, Sentenial founder and CEO Sean Fitzgerald said:
Nuapay’s mission is to be the best way to pay and get paid. The revolution in payments caused by open banking and real-time payments is rapidly building momentum globally, and we are hugely excited by this opportunity to move to a global scale as part of EML.
This growth can be added to the rest of the EML’s business growth which is generating double digit increases in operating profit.
According to reporting by the Australian Financial Review, Wilsons has increased its share price target for EML to $6.51 and still rates it as a buy after the acquisition.
The broker believes that EML is proving to be good at making acquisitions and executing them. Wilsons says there’s a chance that EML could be a globally-leading fintech with an open banking and pre-paid options.
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Tristan Harrison 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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