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Wirecard scandal opens expansion, M&A opportunities for Nordic payment firm Nets

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Wirecard scandal opens expansion, M&A opportunities for Nordic payment firm Nets

The Wirecard AG scandal is creating expansion opportunities for Nordic payment company Nets A/S, which is reportedly also a potential buyer.

Numerous companies have expressed interest in acquiring parts of the beleaguered German payments group, according to Wirecard's administrator, Michael Jaffé. Denmark-headquartered Nets is, along with French payment firm Worldline SA, among potential buyers interested in Wirecard, according to information obtained by German business paper Handelsblatt.

Nets itself would not comment on any M&A interest, but Robert Hoffmann, CEO of merchant services, said the company aims to become "a leading payments player in Europe" and is "of course always looking for opportunities that could further strengthen our business."

SNL ImageNets offers in-store and online payment services, as well as card management.
Source: Nets

Originally focused on the Nordic region, Nets has been expanding since 2019 into the Polish market with the acquisition of online payment service provider Dotcard Sp. z o.o. and merchant acquirer Polskie ePłatności, and in the DACH region following a merger with German payments services firm Concardis GmbH.

Nets' offerings include in-store and online payment acceptance solutions for merchants as well as processing and card management services for banks. The company serves more than 700,000 merchant outlets and over 250 banks across Europe.

Strong position in Germany

The acquisition of Concardis in 2019 has given Nets "a meaningful position in the German market," Lukas Paul, analyst at S&P Global Ratings, said in an interview, adding that the Wirecard scandal could help Nets make "incremental gains" of customers in Germany, particularly within merchant services, its primary business in the country.

The turmoil seems to be working in Nets' favor already. The Nordic player has received an increased number of inquiries, especially from German merchants affected by the scandal, Hoffmann said, adding that he expects Nets to grow both its online and in-store business as a result.

Nets has a good reputation and a "long, credible and spotless past," giving it a competitive advantage in the market when it comes to filling the void left by Wirecard, said Jan Damsgaard, a professor at the Department of Digitalization at Copenhagen Business School. The scandal might also allow Nets to negotiate higher pricing on its offerings, he said.

Furthermore, questions around the reliability of escrow accounts could open up opportunities for companies such as Nets to develop alternative and more secure escrow solutions, Damsgaard told S&P Global Market Intelligence.

Wirecard filed for insolvency in the week of June 22 after it announced that a missing €1.9 billion its auditor Ernst & Young could not account for may not exist. The cash was meant to be held in escrow accounts in the Philippines.

Potential Wirecard buyer

Meanwhile, experts disagree on the likelihood that Nets will look to buy Wirecard or parts of it.

"Most likely not," said Thierry Guermann, director at S&P Global Ratings. Nets already has its own technology, "so to buy a competitors' technology is not an obvious case," he said in an interview. Furthermore, Nets is already well diversified and therefore unlikely to want to go into new segments, he said.

Even if Nets wanted to buy Wirecard, it would be very difficult for the company to undertake any big acquisition at the moment, said Pierre Garin, analyst at S&P Global Ratings.

"They're not in a position to be able to do so. In terms of capacity, it would be very complicated. Nets is already very highly leveraged. They wouldn't find money to borrow, and it would make the situation even more complicated for them," he told S&P Global Market Intelligence.

Nets is already counting on €2.85 billion in proceeds from the sale of its account-to-account payment business to Mastercard Inc. in order to stabilize its capital structure, Garin said. The sale, which was announced last year, is being reviewed by the European Commission.

Even if Nets used 75% of proceeds to prepay its €3.5 billion gross debt, the company's adjusted leverage would still be between 8x and 10x in 2021, S&P Global Ratings forecast in an April 23 note, in which it downgraded the Nordic payments firm to B- amid concerns about the impact of the coronavirus crisis.

"If there is additional shareholder funding, that could, of course, change the picture," said Paul, commenting on Nets' capacity to make further acquisitions.

Henning N. Jensen, a payments expert and owner of Danish consultancy PlusCon, is doubtful that financial challenges will be a decisive factor in Nets' decision to engage in M&A negotiations with Wirecard.

"If Nets wants to buy Wirecard, it will find the money to do so," he said in an interview.

Nets will likely be interested in Wirecard's customer base rather than its technology, he said, adding that Nets has proved with previous deals that it can "quickly and efficiently" integrate acquired companies and their clients into its business.

"With the already-completed acquisitions and the expansion plans that Nets has released, I have no doubt that there is capacity for another acquisition when the right opportunity arises. Nets' owners are in a strong financial position and have a clear expansion strategy," he said. Nets is owned by American equity fund Hellman & Friedmann, which acquired the Nordic company in 2018.

"Nets is, of course, interested in buying parts of Wirecard. Whether it does it or not is another matter, it depends on how deep the scandal turns out to be," Jensen added.

In other news, Deutsche Bank AG is considering acquiring Wirecard unit Wirecard Bank AG, Bloomberg News reported July 2.