The Western Union Company (NYSE:WU) today announced it has signed an agreement with Travelex Holdings Limited to acquire the Travelex Global Business Payments division, a leading specialist provider of international business payments, for Â£606 million in cash.
âThe acquisition of Custom House in 2009 gave us an entry into the business-to-business cross-border payments market, and Travelex Global Business Payments provides us immediate scale, further reach, and added capabilities. We are excited to welcome Travelex Global Business Payments customers and employees to the Western Union family.â
Travelex Global Business Payments (TGBP) conducts business payments annually for 35,000 customers in 14 countries. The division provides international payments services to business clients, namely small and medium-sized enterprises (SMEâs), corporations, and third party distribution partners including over 500 financial institutions. Projected 2011 revenues for TGBP are approximately Â£150 million, with a normalized EBITDA margin of approximately 30 percent.
In combination with Western Unionâs existing Business Solutions business, the acquisition will give Western Union a leading position in the large and growing international business payments market, which has been driven by rapid growth in cross-border trade. Global SME cross-border payments revenues alone are estimated at $24 billion (based on McKinsey and Company estimates), which Western Union believes is similar in size to the consumer cross-border remittance market.
Hikmet Ersek, President and CEO of Western Union, said, âThe acquisition of Custom House in 2009 gave us an entry into the business-to-business cross-border payments market, and Travelex Global Business Payments provides us immediate scale, further reach, and added capabilities. We are excited to welcome Travelex Global Business Payments customers and employees to the Western Union family.â
Peter Jackson, Chief Executive of Travelex, said, âI am delighted that we have reached agreement with Western Union, who will benefit from TGBP's expertise and customer franchise while providing TGBP with significant opportunities for continued growth.â
The combination of Western Union Business Solutions and Travelex Global Business Payments will provide immediate presence in 16 countries with the ability to leverage TGBPâs business-to-business expertise, distribution, and product and functionality platforms with Western Unionâs brand, existing Business Solutions operations, global infrastructure and relationships, and financial strength.
Western Union plans to accelerate growth for the combined business by utilizing the enhanced capabilities and resources to drive further geographic expansion, gain access to new customers and segments, introduce the TGBP third party distribution capabilities to Western Unionâs financial institution relationships, and leverage the Western Union agent network for distribution in certain markets.
Hikmet Ersek added, âWestern Union remains focused on three key strategic growth areas: consumer money transfer, business-to-business payments, and stored value / prepaid. Our consumer money transfer business is strong and growing. Stored value is in the early stages of development both in the U.S. and globally, and we believe our brand and network position us well for long-term success. In business-to-business payments, the combination of Travelex Global Business Payments and Western Union Business Solutions gives us a strong foundation in a growing and largely underserved market, and provides us the opportunity to drive additional growth for years to come.â
Western Union expects the combined TGBP / Western Union Business Solutions revenue to grow at an approximately 10% CAGR over the next three years, with accelerated longer-term growth and margin expansion opportunities once integration activities have been completed. Integration expenses are anticipated to be approximately $70 million over 2 years, with synergy savings of approximately $30 million annually after full integration (estimates are based on current exchange rates). The company expects acquisition related non-cash amortization expense from the transaction of approximately $40 million annually beginning in 2012.
The TGBP acquisition is anticipated to be dilutive to Western Unionâs GAAP EPS by approximately $0.02 in 2011 and approximately $0.04 in 2012 due to deal and integration costs and non-cash amortization expense (the acquisition is expected to be cash accretive in 2012). The acquisition is expected to be accretive to 2013 GAAP EPS by approximately $0.04.
The transaction is subject to regulatory approvals and satisfaction of closing conditions, and is expected to close in late 2011. The cash acquisition will be funded by Western Unionâs existing cash balances, with funding primarily sourced from international cash.