Optimal Payments to acquire California based Meritus Payment Solutions to accelerate expansion in U.S. payments market

Acquisition of leading payment processing company substantially increases scale and drives multi-channel sales growth in rapidly expanding U.S. ecommerce market

LONDON, MONTREAL and NEW YORK, July 1, 2014 /CNW Telbec/ - Optimal Payments Plc (LSE AIM: OPAY, "Optimal Payments" or the "Group"), a leading global online payments and risk management provider, has entered into a definitive agreement to acquire all of the partnership interests of California based payment processing entity TK Global Partners LP ("Meritus") (doing business as 'Meritus Payment Solutions') for consideration of $210 million consisting of $150 million in cash and $60 million of Optimal Payments shares (issued in equal tranches over four years commencing on the first anniversary of the closing date), subject to customary closing adjustments (the "Meritus Acquisition"). 

Optimal Payments has also entered into a definitive agreement to acquire the trade and assets of Global Merchant Advisors, Inc. ("GMA"), a U.S.-based online payments company, for up to $15 million in cash, $10 million of which is payable on closing and the balance based on future performance of the business (the "GMA Acquisition"). Completion of the Meritus Acquisition and the GMA Acquisition (together, the "Acquisitions") are conditional on one another and subject to customary closing conditions. Closing of the Acquisitions is expected to occur early in the third quarter of 2014. A further announcement will be made in due course to advise on completion.

Strategic highlights of the Acquisitions

• Acquisition of fast growing companies in key U.S. market
  • U.S. merchant portfolio: adds over 8,000 U.S. high growth small and medium businesses ("SMB") in a broad range of vertical markets.
  • U.S. sales force: provides a successful, established and multi-channel U.S. sales force.
  • U.S. acquiring bank relationships: provides additional established U.S. acquiring bank relationships with leading bank partners.
  • Adds scale to NETBANX®: diversifies and broadens Optimal Payments' NETBANX payment gateway and acquiring services business.
    
    
• Strong financial rationale
  • Acquisition of these profitable, fast-growing and cash-generative businesses is expected to enhance earnings.
  • Meritus financials (audited)
    • 2013: revenues $74.4 million, profit before tax $1.1 million, Net assets at 31 December 2013 $1.7 million, normalized EBITDA $13.0 million⁽¹⁾
    • 2012: revenues $38.3 million, profit before tax $0.7 million, normalized EBITDA $6.0 million
  • GMA financials (unaudited)
    • 2013: revenues $8.3 million, profit before tax $0.1 million, Net assets at 31 December 2013 $0.3 million, normalized EBITDA $4.6 million⁽¹⁾
      
      
• Major merchant concentration: expected to materially reduce concentration as a consequence of the Acquisitions.
• Strategic fit: delivers synergistic corporate culture, values and entrepreneurial spirit.
• Brands: Optimal Payments will continue to operate the Meritus brand which has a strong presence and value in the key U.S. market.
• Financing: Bank of Montreal has committed to provide financing for the Acquisitions via multi-currency credit facilities of $150 million.

⁽¹⁾  Normalized EBITDA is after adjustments to remove management drawings and other costs that will not recur following the acquisition

Joel Leonoff, President and Chief Executive Officer, Optimal Payments, commented:

"The U.S. market represents the single greatest expansion opportunity for Optimal Payments. After careful evaluation of a number of potential candidates, Meritus stood out as the perfect choice on all fronts.  The company's strong stakeholder relationships, multi-channel sales force, established presence with small and medium businesses in the U.S. and entrepreneurial spirit makes them an ideal acquisition for us. I am very excited about the combination of our businesses which immediately accelerates the Group's growth opportunities and accomplishes a stated key strategic goal for us in 2014."

Alan Kleinman, Principal and Co-founder, Meritus Payment Solutions, added:

"Combining forces with Optimal Payments marks a significant step in realizing our strategic goals. Optimal Payments offers our employees, merchants and business partners the experience, global infrastructure and product offering to achieve the scale required in today's payments market. Our two organizations share the same enthusiasm and philosophy for future growth as we prepare to combine operations and leverage each other's strengths."

Analyst meeting and further information

Optimal Payments held a briefing for analysts and investors at the offices of Canaccord Genuity, 88 Wood Street, London, EC2V 7QR at 9.45 am (UK) today.  A conference call facility was available at: +44 203 427 1904 (Participant code 8301287#).

The presentation slides and, an audiocast of the presentation are available as a replay on the Group's website at: http://www.optimalpayments.com/investor-relations/results-reports-presentations.

For more information on Optimal Payments visit www.optimalpayments.com or subscribe at www.optimalpayments.com/feed or follow us on Twitter @optimalpayments.

About Optimal Payments Plc

Optimal Payments is a global provider of online payment solutions, trusted by businesses and consumers in over 200 countries and territories to move and manage billions of dollars each year.  Merchants use the NETBANX® platform and services to simplify how they accept credit and debit card, direct from bank, and alternative and local payments; and the NETELLER® service to increase revenue and capture new customers.  Consumers use the multilingual and multicurrency NETELLER and Net+® Card stored value offering to make secure and convenient payments. Optimal Payments Plc is quoted on the London Stock Exchange's AIM, with a ticker symbol of OPAY.  Subsidiary company Optimal Payments Ltd is authorized and regulated as an e-money issuer by the UK's Financial Conduct Authority (FRN: 900015).

In 2013, Optimal Payments' revenues grew 41 percent (41%) to $253.4 million, EBITDA rose 89 percent (89%) to $52.2 million and Net Profit increased to $35.1 million from $1.2 million in 2012. At the time of Optimal Payments' 2013 AGM statement in May, the Group announced an excellent start to 2014 including the launch of its new NETELLER offering for the U.S. market and achievement of Principal Membership for its NETBANX product that will enable the provision of card acquiring services to its merchants in the European Union from the second half of 2014.

About Meritus Payment Solutions

Established in 2008, Meritus is a high growth and profitable organization with a similar entrepreneurial corporate culture and set of values to Optimal Payments. It has approximately 100 employees and processes more than $3 billion in transaction volume annually. Meritus has a proprietary technology platform and operates a streamlined and efficient merchant onboarding process. Revenues grew from $38.3 million in 2012 to $74.4 million in 2013 and strong growth is expected to continue.

About GMA

Based in Los Angeles, California, GMA is a fast growing payments company serving small to medium sized businesses. The company focuses primarily on segments of the market that have been underserved by larger payment processing competitors, offering small merchants "industrial grade" processing solutions. Since its launch in 2010, GMA has built its merchant base and processing volume through its direct sales efforts and network of bank, third party processors and technology partners.

Optimal Payments Plc was advised by Deloitte Corporate Finance LLC and Stikeman Elliott LLP. Meritus Payment Solutions was advised by William Blair & Company and Manatt, Phelps and Phillips LLP.

This summary should be read in conjunction with the full text of this announcement.

OPTIMAL PAYMENTS ANNOUNCES THE ACQUISITION
OF MERITUS PAYMENT SOLUTIONS AND GMA

Optimal Payments Plc (LSE AIM: OPAY, "Optimal Payments" or the "Group"), a leading global online payments and risk management provider, has entered into a definitive agreement to acquire all of the partnership interests of California based payment processing entity TK Global Partners LP ("Meritus") (doing business as 'Meritus Payment Solutions') for consideration of $210 million consisting of $150 million in cash and $60 million of Optimal Payments shares (issued in equal tranches over four years commencing on the first anniversary of the closing date), subject to customary closing adjustments (the "Meritus Acquisition"). 

Optimal Payments also entered into a definitive agreement to acquire the trade and assets of Global Merchant Advisors, Inc. ("GMA"), a U.S. based online payments company, for up to $15 million in cash, $10 million of which is payable on closing and the balance based on future performance of the business (the "GMA Acquisition"). Completion of the Meritus Acquisition and the GMA Acquisition (together the "Acquisitions") are conditional on one another and subject to customary closing conditions. Closing of the Acquisitions is expected to occur early in the third quarter of 2014.

Rationale for the Acquisitions

The Acquisitions will significantly accelerate Optimal Payments' expansion into the rapidly expanding U.S. ecommerce market by providing it with a diversified 8,000 SMB merchant client base; a highly agile multi-channel sales force operating in complimentary and new vertical markets; and partnerships with leading U.S. acquiring banks.

The Acquisitions will also allow Optimal Payments to offer Meritus' and GMA clients access to its global network and the ability to more easily sell products and services online virtually anywhere in the world. Similarly, Optimal Payments' international clients will gain greater access to the U.S. market.

Details of the terms of the Meritus Acquisition

• The number of Optimal Payments shares to be issued in connection with the Meritus Acquisition is determined using the volume weighted average trading price ("VWAP") of the Optimal Payments Shares on the London Stock Exchange's AIM market for the five (5) trading days immediately preceding July 1, 2014 which is the date the definitive agreement was signed and which equals £3.93 (the "Signing Date VWAP").
• The total number of Optimal Payments shares to be issued is then calculated by converting $60 million into GBP using the Bank of England noon rate on June 30, 2014 and dividing by the Signing Date VWAP which equals a total of 8,954,621 Optimal Payments shares.
• On each of the four yearly anniversaries of the closing date (each an "Anniversary Date"), one quarter of the above stated number of Optimal Payments shares will be issued to the sellers.
• The sellers will be entitled to additional Optimal Payments shares or cash (at Optimal Payments' option) in the event that the VWAP of the Optimal Payments shares on the London Stock Exchange's AIM market for the ten (10) trading days immediately preceding an Anniversary Date drops below eighty percent (80%) of the Signing Date VWAP.
• The maximum number of Optimal Payment's shares to be issued in aggregate to the sellers on the four anniversary dates may not exceed ten percent (10%) of the then fully diluted outstanding Group shares. The balance, if any, will be paid in cash.
• Closing of the Meritus Acquisition is subject to customary closing conditions, including:
  • Receipt of certain required third party consents;
  • Execution of employment agreements and non-competition and non-solicitation agreements with Meritus senior management;
  • Execution by the sellers of an orderly marketing agreement relating to the sale of their Optimal Payments shares; and
  • Closing of the GMA Acquisition.

Details of the terms of the GMA Acquisition

• $10 million in cash will be paid on closing. The remaining $5 million will be paid in cash on the one-year anniversary of the closing if certain earning targets are met.
• Closing of the GMA Acquisition is subject to customary closing conditions, including:
  • Receipt of certain required third party consents;
  • Execution of an employment agreement with the GMA senior manager;
  • Execution of a non-competition and non-solicitation agreement with the seller; and
  • Closing of the Meritus Acquisition.

Details of the Financing

Bank of Montreal has committed to provide Optimal Payments and certain of its subsidiaries with secured credit facilities for the purpose of financing a portion of the Acquisitions, as well as their ongoing working capital requirements. These credit facilities will consist of a $100 million term loan facility and a $50 million revolving loan facility, each maturing on the third anniversary of the closing of the Acquisitions. Each of Optimal Payments' material subsidiaries will guarantee the credit facilities although the guarantees from each of Optimal Payments Limited and Optimal Payments Merchant Services Limited would be limited in nature. The borrowers and the unlimited guarantors will grant a lien on substantially all of their assets as security for the credit facilities.  Optimal Payments will need to respect certain financial covenants that would be tested quarterly on a consolidated basis. The closing of the credit facilities is subject to the execution of definitive loan documentation and the satisfaction of customary conditions precedent.

Forward-looking Statements

Some of the information in this announcement may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may", or "might" the negative of such terms or other similar expressions. The Group wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Group does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including, among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations.

Publication on website and availability of hard copies

A copy of this announcement will be available free of charge on Optimal Payments' website at www.optimalpayments.com. The contents of Optimal Payments' website, and those of any other website accessible from hyperlinks on Optimal Payments' website, are not incorporated into nor form part of this announcement.

SOURCE Optimal Payments Plc