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Global Payments-TSYS Merger Is the Best of the Bunch

This combination will help the company exploit some key trends.

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M&A has been the name of the game in the acquiring industry this year, with Fiserv (FISV) and Fidelity National Information Services (FIS) snatching up First Data and Worldpay, respectively, and Global Payments (GPN) merging with Total System Services, or TSYS, in a deal that closed in mid-September. We think the Global Payments-TSYS combination is the most attractive. The targeted cost synergies are the most modest, but we think the deal has the most capacity to reduce costs without impeding growth. Additionally, of the three deals, this merger is the only one involving two companies that both have acquiring operations. Given that we believe scale is critical to competitive positioning in the industry, this combination should immediately strengthen Global Payments’ economic moat.

The acquiring industry continues to evolve, and we think this merger will better position Global Payments to adapt to these changes. First, we think international expansion will be an increasing area of focus for acquirers. The United States is relatively advanced in its shift toward electronic payments, and expanding into new markets will be necessary to maintain growth and ultimately to protect scale advantages and moats. The two companies should be able to leverage each other’s global footprints.

Brett Horn does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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