M&A Ananlysis: China’s Ant Financial acquires Moneygram

moneygram

Financial tech company to buy U.S. money-transfer provider for $880 million

At a time when globalization is being called into question, China’s biggest online-payments company is seeking a foothold in the U.S. with a major acquisition.

Ant Financial Services Group, which works closely with Alibaba Group Holding Ltd. and is controlled by Alibaba founder Jack Ma, announced a deal Thursday to buy U.S. money-transfer provider MoneyGram International Inc. for $880 million. The closely held Chinese firm, which sports a $60 billion valuation, will pay $13.25 a share for the Dallas-based company, a 12% premium to its Wednesday closing price of $11.88. On Thursday, the stock rose 8.8%, to $12.92.

With the deal, Ant Financial would gain a large footprint and a brand name in the U.S. and expand its global money-transfer business, ultimately bringing it into closer competition with PayPal Holdings Inc. and other established payments companies.

But the deal may also draw scrutiny from U.S. authorities under President Donald Trump, who has argued that the U.S. needs to shield its companies and workers from unfair global competition and has pushed for restrictions or taxes on some cross-border flows.

Ant Financial’s Alipay service is China’s dominant online-payments platform, linking merchants and consumers as well as allowing individuals to transfer money among friends and family.

Since being split off from Alibaba, the financial-services operation has expanded from an online-payment platform into online wealth management and banking, as well as global payments services. Last year it struck a deal with First Data Corp. to enable its Alipay online wallet to be accepted as payment at U.S. stores. It is planning an initial public offering of its own.

MoneyGram, which traces its roots to a unit of Travelers created in the 1940s, joins with 350,000 banks, kiosks, stores and other locations in 200 countries to allow customers to send cash from one place to another. In recent years, it has expanded its digital offerings as well.

Competition in the payments business is fierce, especially for the huge flows of money from developed countries to developing ones, with many foreign workers sending money back to their home countries, like between the U.S. and Mexico, or the Middle East and India.

Western Union Co. is a major competitor, as is PayPal, which owns the Xoom service and like Ant offers digital person-to-person transfers and mobile wallets for online payments. A number of mobile money-transfer startups have also launched in recent years, putting further pressure on pricing.

MoneyGram began considering a sale in 2013, The Wall Street Journal reported at the time. But it lost a relationship with Wal-Mart Stores Inc. in 2014 and launched a restructuring, seeking to cut costs. The shares fell about 70% from their peak in 2013 through late last year.

The stock has surged in recent months, however, doubling between late October and before the acquisition news Thursday. Many financial-services companies have rallied since the November election on hopes for an uptick in economic activity and lighter regulation.

President Trump, though, has proposed cutting off billions in U.S. remittance payments to Mexico as a way to extract payment for an expanded border wall, which could affect part of MoneyGram’s business. Despite the political pressure in many developed countries, notably the U.S., to restrict the flow of workers and money across borders, Alipay officials said there remained opportunities to link mobile platforms and financial services in China with MoneyGram’s network.

“You’re going to have political winds blowing one way or another in a given country,” said Douglas Feagin, Ant Financial’s senior vice president of global business. “But the opportunity to do things across this network is great.”

He said a particular appeal of MoneyGram was that it wasn’t reliant on a single transfer corridor or hub, linking both to U.S. payments as well as those flowing from the Middle East to India, and from Africa into Asia. Ant has recently expanded its services in India and Thailand.

Before the deal closes, however, it will need to seek approval from the Committee on Foreign Investment in the U.S., or CFIUS, a secretive multiagency panel that reviews foreign acquisitions of assets in the U.S. for national-security threats. The panel has opposed several recent Chinese acquisitions of U.S. and European companies.

Ant’s deal in September to buy technology firm EyeVerify Inc. was approved in four months, the company said. But it isn’t clear if a deal involving a financial tool for many Americans would receive more protracted scrutiny.

It also remains to be seen whether the Trump administration will take a tougher stance on Chinese acquirers. Mr. Trump has made taxing and restricting cross-border commerce a plank of his economic agenda and has focused in particular on China and its trade policies.

But Mr. Trump recently met with Mr. Ma, the billionaire founder of Alibaba and Ant, with the Chinese magnate touting a plan to help create U.S. jobs by enabling small U.S. businesses to sell goods into China. “Jack and I are going to do great things,” Mr. Trump said at the time.

Mr. Ma owns about a third of Ant Financial, which he spun out of Alibaba in 2011. Ant has a commercial agreement to provide payments services for Alibaba, akin to PayPal’s close integration with eBay Inc., but Mr. Ma doesn’t have a board seat or management role at Ant.

Mr. Feagin said Ant “would expect [the deal] to be subject to a CFIUS review, as well as state reviews for approval of money licenses. We’re very happy to go through that process.” He said Ant is already itself a money transmitter in several states and has “a good dialogue with U.S. regulators.”

 

Sources:  https://www.nytimes.com/2017/01/26/business/dealbook/with-moneygram-chinas-ant-financial-gets-an-american-base.html

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About Anang Tawiah

About the author :: Anang Tawiah is a New York City based Management Consultant specializing in Investment Risk and Technology Strategy. He continues to guide many Blue chip companies and Governments as a Business and Technology Consultant. Please direct all follow up questions, concerns, request for speaking engagements and presentations regarding my articles and research to my Facebook Page listed below. You can read more of his analysis or reach him for further professional consultations and or guidance at: // Email: anang@labaddi.com // Follow me on Wordpress: www.anangtawiah.com // Follow me on Facebook: www.facebook.com/AnangTawiah

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