Nexi – acquisition synergies kick in but growth slows

Italian pan-European acquirer/processor Nexi, reported slower growth but higher profits in Q4 2022 as it realised acquisition synergies quicker than expected. Despite a more challenging macro environment than anticipated, CEO Paolo Bertoluzzo declared 2022 a “year of strong progress for our company.”

Nexi’s total turnover grew 4% in Q4 to €879.5m.

Merchant solutions is the largest division and the one that interests us most at Business of Payments.

Payment volume grew 9% in Q4 to €204bn. Despite the fast pace of acquisitions, Italy still accounts for 57% of payment volume. 

Taking 2022 as a whole, Nexi’s SME merchants continue to outperform with volume up 25% and over 200,000 extra terminals placed. Large account volume rose 15% and management is looking forward to “a strong pipeline of commercial wins across markets with a specific focus omnichannel, grocery and retail and vertical solutions in petrol and EV charging.” 

2023 has started very well. Total volumes are reported up 17% to the end of February.

Merchant revenues grew 3.3% in Q4 22, although management points to an underlying increase of 7.9% excluding Ratepay and some phasing of scheme fees in Italy. Ratepay is a German BNPL business which Nexi inherited from Concardis. It takes risk on customer payments and doesn’t fit with Nexi’s business model. Ratepay has been up for sale for some months but no buyers have emerged, so the business has entered a “managed slowdown” that reduced revenue by €16m in Q4. 

The big news was the acquisition of Banco Sabadell’s merchant payment business which catapults Nexi into number two position in the Spanish market. Sabadell made clear that deal was not just about price. It wanted a partner. Bertoluzzo explained “We’ve been chosen especially for our capabilities and for our people and the work we’ve done with the bank over the last few months.”

Nexi is paying €280m for 80% of a portfolio which brings revenues of €48m and EBITDA of €30m from 380,000 merchants generating €48bn payment volume annually. Sabadell is injecting the merchant contracts into its Paycomet gateway unit which will be the entity purchased by Nexi. 

Sabadell will sign a long-term distribution agreement with 10 years exclusivity to send Nexi sales leads from its 1,200 bank branches. These arrangements can be gold dust but also can be less rock solid than they might appear. EVO Payments had a similar distribution agreement with Banco Popular. This bank was sold to Santander which started referring leads to its in-house product team instead. EVO went to court and lost.  

Nexi is paying an EBITDA multiple of 11.5 which is line with its recent deals in this sector as you can see from the table below. Management says that if the new business meets its earn-out targets, this multiple drops to 10.

Nexi acquisitions 2021-23

BPER & BdSISPAlphaSabadell
MarketItalyCroatiaGreece Spain
Payment volume (€b)135948
No of merchants           110,000         13,000  n/a        380,000 
Nof of POS           150,000  n/a        150,000 n/a
Rev (€m) n/a  n/a  €             93  €             48 
EBITDA (€m) €                 32  €            17  €             18  €             30 
Enterprise Value (€m) €               318  €          180  €           307  €           350 
EV/EBITDA                    10                11                 17                 12 
Source: company reports

Sabadell brings Nexi a strong position in a large payment market with “unique structural characteristics and significant growth potential.” Nexi is particularly attracted by Spain’s low card penetration and SME dominated merchant landscape. But most importantly, because the market is still dominated by banks, Spain lags “behind European markets in terms of product innovation, commercial innovation, channels and so on.” 

Nexi believes that most of the acquisition synergy will be on the revenue side. Pricing will be especially interesting. One analyst noted that the enterprise value was just 0.7% of payment volume. The take rate is just 10bps. Bertoluzzo explained that Spanish banks tend to cross-subsidise payment processing with other banking products. Nexi believes its presence in the market will enable “enable a more rational pricing approach.” 

Integration is expected to be “very simple and lean“, presumably because the merchants can continue to process on existing systems and that Paycomet will come with its own regulatory approvals.

Nexi’s issuer solutions division has been struggling for sales growth of late, in common with ACI and similar divisions of Worldline, FIS and Fiserv. It’s really not been a good time to be selling software and services to banks. Nexi issuer revenues grew 4% in Q4 22 helped by an extra 1.7m international debit cards supported in Italy. Management is very happy to have won Commerzbank in Germany. 

Nexi earns twice as much revenue per transaction in merchant solutions than issuer solutions.

Digital banking solutions is the smallest of the three divisions, accounting for 14% of total revenues. It grew sales 7% in Q4 and reports continued good performance in its Italian open banking access platform. 

Cost control was impressive with overall expenses falling 0.5% in Q4. A 3.3% increase in personnel expenses was offset by a similar fall in operating costs as Nexi overdelivered promised synergies from its recent string of large acquisitions. The technology teams have been busy. Bertoluzzo said that in 2022, “we did actually consolidate 5 data centres and a couple of processing platform. We expect in the new year to basically do it in reverse and therefore, consolidate another couple of data centres and about 5 to 7 processing platforms.“ 

Rising revenues and steady costs helped EBITDA grow 8.7% in Q4 to €451.6m with EBITDA margins ticking up 2% pts to 51%. Of recent acquisitions, BPER and ISP Croatia together contributed €52.5m revenues and €40.6m EBITDA in FY 22.

This positive financial leverage has allowed Nexi to continue to invest. Capex was 16% of FY 22 revenues although this is expected to fall to 7-9% longer term as a series of integration projects comes to an end.

Looking forward management is confident about 2023 and is guiding investors to 7% revenue growth and >10% EBITDA growth. 

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