Brazil's Cielo buys U.S. payment company for $670 million

Mon Jul 2, 2012 8:13am EDT

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(Reuters) - Brazil's Cielo (CIEL3.SA) on Monday said it will buy U.S. payment solutions provider Merchant e-Solutions for $670 million to enable the South American country's largest card payment processor to settle more online transactions.

Cielo will pay cash for Merchant e-Solutions once the transaction is concluded, according to a securities filing. MeS, as the Redwood City, California-based company is known, specializes in settling e-commerce and mobile payments and annually processes more than $14 billion in transactions for some 70,000 retailers.

The deal will allow Cielo to diversify its services base amid a rapid expansion of debit and credit card use in the world's sixth-largest economy, especially as Brazilians buy more goods and services over the Internet. According to the filing, MeS's commerce processing platform currently accounts for 57 percent of the company's annual revenue.

Merchant e-Solutions had revenue of $124 million in the 12 months that ended May 31. MeS's earnings before tax, interest, depreciation and amortization, a gauge of operational profitability known as EBITDA, was 45 percent of revenue in the same period.

Cielo and smaller rival Redecard RDCD3.SA want to expand their menu of services as new competitors make a play for a greater share of Brazil's $300 billion-a-year payment processing market. Diversification may help fend off a government drive to entice competition in the sector -- Cielo and Redecard currently dominate about 80 percent of the market.

According to Cielo, the acquisition of MeS will allow it to provide "complete end-to-end service for the sector," including e-commerce and retail stores coverage, while offering more competitive fees to its customers.

According to the filing, Cielo paid for MeS the equivalent of 11 times enterprise value to EBITDA, a gauge used to measure the value of a company.

(Reporting by Guillermo Parra-Bernal; Additional reporting by Alberto Alerigi Jr in Sao Paulo; Editing by Gerald E. McCormick and Maureen Bavdek)

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