* Cielo to pay $670 mln in cash for U.S. company
* Buy comes as company seeks to fend off competition
July 2 Brazil's Cielo said on Monday
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.
"We understand that one of the reasons Merchant e-Solutions
had such success ... was their ability to think out of the box,
execute quick and good solutions to their customers," Chief
Executive Officer Romulo Dias said in a conference call.
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
Cielo and smaller rival Redecard want to expand
their 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.
Cielo paid for MeS the equivalent of 11 times enterprise
value to EBITDA, a gauge used to measure the value of a company.
"We view the deal as a win for Cielo and appreciate the
importance and focus that they are putting on bringing the best
technology to the Brazilian market at a time when they might
have the opportunity to win significant business from a Redecard
in flux," Craig Maurer, an analyst with Credit Agricole
Securities USA, said in a report.
With the MeS acquisition, Cielo gains a foothold in Silicon
Valley, Dias said in the call.
Maurer said he is encouraging investors "to view this as a
technology-platform purchase" instead of a merchant-acquiring
acquisition since it is difficult to see Cielo seeking to enter
the U.S. card processing sector.
The shares of Barueri, Brazil-based Cielo were down 0.5
percent on Monday to 58.50 reais. The stock is up 16 percent