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Saturday, Sep 19th

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Payment Tech M&A: Avangate acquires 2Checkout

On April 3rd 2017, e-Commerce Merchant-of-Record supplier Avangate (MGI 360 rating: 46, Outlook: Neutral) announced an acquisition of 2Checkout, a payment gateway operating as a payment facilitator. 2Checkout provides merchants with payment pages, mobile checkout and PCI compliance globally.
This is a summary of the research note attached below.
Key Issues 
  • How will the technology landscape for global payments evolve?
  • What best practices can enterprise deploy to optimize their payment and foreign exchange processing costs?
  • What is the impact of new FinTech offerings on payments technologies and practices?
  • Who are the winners and losers in the evolving digital payments economy?
Our QuickTake analysis is that this is an economically motivated deal. It aims to bulk up the revenues and the payment volume of Avangate. It also provides Avangate with a payment facilitator (“PayFac”) capability. Aside from a gain in revenue for the combined entity, the near term benefits are not immediately obvious for customers and prospects. Until a crisp integration and go-forward plan is formulated and Avangate’s operational strategy is clear, the deal will likely consume precious Avangate resources.
A positive outcome of this deal would be for Avangate to move more quickly towards disaggregating its all-in-one merchant of record capabilities and offer a more flexible set of components of its services. Moving towards a Payment Facilitator (PayFac) model is a step in the right direction.
Bottom Line
This is an immediate win for Avangate in terms of processed volume and the ability to negotiate with its suppliers. 2CheckOut adds to critical mass – several thousand customers, and a new base in the USA. It also brings an expanded merchant community that Avangate may aim to bring online, globally, over time. In the short term, the lack of an integration roadmap and a cloudy licensing status for 2CheckOut in the UK gives one pause. While the Avangate management team has a past track record of managing acquisitions and expects to add resources post-transaction, current customers and prospects should expect a degree of operational distraction for the next 6-12 months. We will be reviewing and updating the Avangate MGI 360 Rating shortly to account for the impact of this transaction.
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