Global Payments Inc (GPN.N) agreed to buy Accelerated Payment Technologies for $413 million from private equity firm Great Hill Partners as the payment processor looks to boost its falling margins in the face of increasing competition.
Margins at the company, whose systems were targeted by hackers earlier this year, have fallen over the past few years. In 2012, consolidated margin was 13.9 percent, down from 17.8 percent a year earlier.
The deal seems more like a strategic partnership to boost margins and earnings in the future than an attempt to hold up against competition, said analyst Meghna Ladha of Susquehanna Financial Group, which makes a market in the company's shares.
Accelerated Payment Technologies processes online transactions for small and mid-sized merchants.
Payment processors are facing more competition as startups gain momentum. Square Inc, the 2-year-old startup led by Twitter co-founder Jack Dorsey, is emerging as a possible threat to companies like Global Payments.
Starbucks Corp (SBUX.O) is already looking to use Square to process payments at its coffee shops in the United States.
Global Payments has been making strategic investments to grow its business. It said in July it would buy the remaining 44 percent of its payment processing joint venture with HSBC Holdings (HSBA.L) for $242 million.
"This (the acquisition) could limit near-term use of the recently authorized $150 million buyback and the purchase price appears quite full," David Koning of Robert W. Baird & Co wrote in a note to clients.
The company had cash and cash equivalents of about $781 million at the end of May.
While the financing details of the deal were not mentioned in the statement, analysts at brokerage Jefferies said they expect the acquisition to mostly be financed through the company's credit facility.
The company has outstanding debt of $800 million, according to Thomson Reuters data.
Global Payments expects the deal to hurt its net earnings per share this year, but add to its cash operating margins on an annualized basis.
Shares of the company were down more than 1 percent at $41.35 on the New York Stock Exchange on Wednesday.
(Reporting by Sharanya Hrishikesh in Bangalore; Editing by Supriya Kurane)