Global Payments Just Acquired Heartland Payment Systems; Here Is What Wall Street Is Saying

• Shares of Global Payments Inc GPN plunged by more than 11 percent, while shares of Heartland Payment Systems, Inc. HPY gained more than 10 percent.
• Global Payments announced after Tuesday's close it will acquire Heartland Payment for $4.3 billion, or $100 per share.
• Wall Street analysts were mixed on the deal announcement.

Global Payments, a provider of payment technology services, announced that it has agreed to acquire Heartland Payment Systems, a provider of card payment processing services to merchants, for $4.3 billion – or $100 per share.

Global Payments said in its press release that the combined entity will provide payment solutions to nearly 2.5 million merchants globally. On a combined basis, the two companies will generate in excess of $3 billion of net revenue and $1 billion of EBITDA annually.

However, investors appear to be mixed on the deal. By early Wednesday afternoon, shares of Global Payments lost more than 11 percent. Meanwhile, shares of Heartland Payment hit a new 52-week high of $95.16, noticeably trading at a discount to the $100 per share takeout offer.

Related Link: Credit Suisse Is Bullish On Payment Processors, Notes ‘People Will Not Stop Buying Things'

Macquarie Research: Deal Will Create Shareholder Value For Global Payments

Kevin McVeigh of Macquarie Research commented in a note that consolidation in the payment space is "positive" and Global Payments' acquisition of Heartland Payments provides the company with "greater scale" and "cost leverage."

McVeigh said Heartland Payments uses a direct and commission-based sales force. This business model "complements" Global Payments direct channel business which has shown a double-digit revenue growth over the past five quarters.

Finally, McVeigh suggested that Global Payments' acquisition is the "latest initiative" by its CEO Jeff Sloan to create additional shareholder value. The analyst estimated that the deal could be $0.20 to $0.25 accretive to its 2017 earnings and $0.50 to $0.75 per share in the years following. As such, this could be worth anywhere from $5 to $15 of equity value per share depending on overall synergies.

Shares of Global Payments remain Outperform rated with an unchanged $77 price target.

Morgan Stanley: Global Payments Is ‘Expanding Its Footprint'

Vasundhara Govil of Morgan Stanley commented in a note that Global Payments' acquisition advances its strategy to "expand its vertical footprint and develop deeper software specialization" within the OpenEdge platform. The analyst added that the acquisition can also benefit from cross-selling and delivering technology-based solutions to clients across the world.

Govil said despite both companies focusing on the small and medium sized merchant market, there is "surprisingly little overlap" across the distribution channels. Moreover, Global Payments is "poised to benefit" from exporting Heartland Payment's "unique" sales strategy to new geographic regions where is growing its sale force.

Govil pointed out that Global Payments expects to realize $50 million of synergies in fiscal 2017, followed by $125 million in an annual run-rate in the following years. The analyst estimated this could result in an earnings per share accretion of a mid-single digit in fiscal 2017 (or $0.22 to $0.23 per share) and double digits accretion in the later years ($0.50 to $0.55 per share by fiscal 2019).

However, Govil argued that the $4.3 billion price tag on the acquisition (including the assumption of $500 million of debt) represents a premium of 17 percent versus Heartland Payment's closing price on Tuesday and a 19.2x C2016 EV/EBITDA multiple. The analyst stated that this represents a "meaningful" premium to comps and other high profile deals in the space.

Shares of Global Payments remain Equal-weight rated with an unchanged $68 price target.