Behind the SafeCharge Deal: Tech, Growth and Consolidation

The agreement with Nuvei is likely to be followed by more mergers and acquisitions in the payments sector

Anyone who attended the iFX Expo in Cyprus two months ago will know that there are a lot of payments companies out there in the world today. In fact, walking around the event in Limassol, it seemed that there were more companies processing payments than foreign exchange brokers – no mean feat considering that there are hundreds of trading firms operating in Europe alone.

Of the many payments companies attending the event, one of the bigger names was SafeCharge. Founded in 2006 by Israeli billionaire Tedi Sagi, the firm announced on the second day of the Cyprus event that it had been acquired by Nuvei, a Canadian firm, for $890 million.

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The deal is thought to have netted Sagi a whopping $600 million. It was the latest instance of the billionaire attempting to divest himself from his holdings in the technology and gambling industry. Along with the sale of SafeCharge, the Israeli businessman sold off his entire stake in online gaming firm PlayTech last year.

Complementary, not competitive

Given the amount of money he made from the deal, it’s not hard to understand why Sagi wanted to sell his stake Safecharge. Nuvei, on the other hand, is unlikely to have been motivated by a desire to fill the businessman’s coffers. But determining why they wanted to buy Safecharge hasn’t been particularly easy.

Finance Magnates reached out to the two companies to get a better understanding of the acquisition, but both refused to comment, saying that the deal still needs to be completed before any announcements can be made. Still, both parties have dropped some big hints as to why the sale took place.

Speaking to Israeli outlet Globes the day after the announcement, SafeCharge CEO David Avgi, who co-founded the company with Sagi, said that the acquisition offered growth opportunity for Nuvei, both in terms of geography and business verticals.

“It’s a case of two complementary companies, not competitors,” he said. “On a geographical level, they focus on North America, while we primarily focus on Europe and Asia, and recently entered the Mexican market as well.

“On the sector level, we have fairly large online customers, while they focus on [small-to-medium size businesses]. We don’t share the same customers or the same markets, and our products are also a little different.”

Going abroad

Though he implied otherwise, Avgi’s firm is actually turning its attention to the US market. A huge proportion of SafeCharge’s revenue is generated by gambling companies. That’s largely due to Sagi’s own success in, and understanding of, the industry.

The US market, however, has always been hard to enter because most online gambling has been illegal since 2006. In May of last year that changed when the US Supreme Court struck down a country-wide ban on sports betting. A few months after that, SafeCharge said it would be partnering with sports betting and e-gaming firm Mazooma to provide payment services to the US gambling industry.

How successful those efforts have been isn’t yet clear. But working with Nuvei, which has offices in both the US and Canada, as well as experience working in America, only seems likely to improve things. The newly formed entity will also have its headquarters just north of the US border in Montreal.

Tech interests

Alongside diversifying its set of clients and geographical operations, Nuvei appears to have been interested in SafeCharge’s technology offering.

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In its own press release announcing the deal, the Canadian payments firm said that acquiring SafeCharge “will allow it to further strengthen its technology platforms by leveraging the innovative, cutting edge technology developed by SafeCharge.”

“We are very excited about the combination of SafeCharge and Nuvei,” added Philip Fayer, Nuvei’s Chairman and CEO. “We think the technology platform SafeCharge has developed is exceptional and will serve as the go-forward foundation from which we will continue to grow the combined business and provide best-in-class products and services to our customers and partners.”

Exactly what technology the company is after is unclear. Both SafeCharge and Nuvei offer a comprehensive set of payments solutions to their clients. So even if they don’t operate in the same industries or jurisdictions, much of their technology does appear to be fairly similar.

Mutual support

Having said that, their focus on different sorts of customers may mean SafeCharge’s technology is in some ways superior to Nuvei’s. For example, the Canadian company pointedly mentioned SafeCharge’s risk management capabilities in its statement announcing the acquisition.

That doesn’t mean Nuvei can offer nothing to SafeCharge. Although they are active in the space, Avgi told Globes that the Canadian firm is much more focused on point-of-sale technology than his company has been.

Moreover, when addressing fears that the acquisition might lead to a wave of job losses, Avgi also specifically mentioned technology as a driving force behind the Nuvei deal.

“In deals like this the workers are sometimes a little anxious,” he said. “I wish to make it very clear: one of the reasons for the deal is the technology, and so the development workers in Israel and Bulgaria should be confident that we shall continue to grow and develop new products.”

Consolidation is coming

Aside from technology, another simpler reason for the deal is that the huge number of players operating in the payments space has in many ways made consolidation inevitable.

Just this week, antitrust regulators in the European Union gave their approval to FIS’ $35 billion takeover of WorldPay. Like with the SafeCharge – Nuvei deal, the two companies were not active in the same verticals or jurisdictions.

And herein lies a simple – but expensive – problem for companies operating in a saturated market. You can spend loads of money expanding into new markets and business areas or you can spend a lot of cash buying another firm that’s already been successful in those markets and business areas.

Nuvei could have tried to expand into the verticals that SafeCharge is strongest in. But that would have likely cost hundreds of millions of dollars and then they would have had to compete with SafeCharge, an already established player with far more experience than them in those specific business areas.

Taking that into account, and considering that Nuvei have plenty of money – they are paying cash for SafeCharge – the leadership at the Canadian firm likely decided it would be simpler to just buy Sagi’s firm, rather than attempt to compete with it.

With that in mind, don’t be surprised if you see more mergers in the near future. Consolidation is coming for the payments world.

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