Ant Financial is set to pursue the biggest acquisition in its history after agreeing to take over US remittance service provider MoneyGram International for $880 million, continuing a recent — and aggressive — approach to offshore acquisitions by the company.
The transaction, which is by far the biggest effort by Ant Financial to expand outside Asia, will see the Chinese firm take control of the 77-year old American brand, one of the world’s most recognised money transfer service providers, as well as its 350,000 outlets across the globe.
The deal was announced just days after chief executive officer Eric Jing spoke about Ant Financial’s aspirations of developing a global business. According to Jing, Ant Financial plans to provide services to 2 billion users — including 1.2 billion non-Chinese users — within 10 years.
Buying MoneyGram is a big step towards achieving that goal, since it will give Ant Financial instant access to 2.4 billion bank and mobile accounts. That is nearly four times its own existing customer base of 630 million users.
But most importantly, Ant Financial is adding an almost completely new client base to its majority Chinese users. MoneyGram provides services in over 200 countries. It is unlikely Ant Financial would have been able to access such a large and diverse user base on its own, according to a person familiar with the Chinese company.
MoneyGram, a Dallas-headquartered company, helps users send and receive money across borders. Most transfers arrive within minutes, according to its website.
It has entered into partnerships with a number of national postal services including Postal Savings Bank of China, Poste Italiane, Canada Post and United Kingdom’s Royal Mail.
Acquisition spree
Supported by a $4.5 billion fundraising in April last year, Ant Financial has been following in the footsteps of its parent company Alibaba by snapping up various assets to expand its portfolio in the run-up to a highly-anticipated initial public offering.
In 2016 alone, Ant Financial has invested in over 10 companies domestically and abroad. These include a $350 million investment in food delivery company Ele.me and another $100 million in auto dealership firm Souche. The firm also took a minority stake in Hong Kong-listed China Zheshang Bank for $30 million.
Outside China, Ant Financial has invested in Indian third-party payment processor Paytm, Thai e-payment services provider Ascend Money, South Korean internet-based lender K-Bank and Taiwan’s Cathay Insurance.
These minority investments are seen as efforts to transform Ant Financial into a full-service financial institution, enhancing the firm’s potential market value ahead of its plan to go public.
But the acquisition of MoneyGram is different. It is only the second time Ant Financial has acquired a company in full — it bought US biometric security firm EyeVerify in November — signalling that the Chinese firm is keen to take control over the money transfer company and include it in Alibaba’s financial ecosystem.
Local competition
Ant Financial is buying MoneyGram at a time when Alipay, the firm’s core online payments platform, faces increasing competition from other e-payment service providers in China.
According to Chinese market research firm iResearch, Alipay’s share in China’s e-payment market has declined sharply to 51.8% in the first quarter of last year from 68.4% in 2015. At the same time, the market share of Tenpay, the e-payment application under Tencent, jumped to 38.3% from 20.6%.
Last year also saw a number of new entrants into China’s e-payment market in partnership with China UnionPay, the country’s state-run bank and credit card network. Apple launched its mobile payments system Apple Pay in February, while Xiaomi and Huawei also started mobile payment applications.
As such, acquiring MoneyGram could allow Ant Financial to diversify its income stream and reduce the reliance on Alipay, which is estimated to be worth more than half of Ant Financial’s entire market value.
Ant Financial is offering MoneyGram shareholders $13.25 per share, representing an 11.5% premium to the Nasdaq-listed company’s $11.88 Wednesday close. However, the total consideration should be much higher since Ant Financial is also taking on the $937 million long-term debt on MoneyGram’s balance sheet as of the end of September last year.
The acquisition requires approval from MoneyGram shareholders, but that is unlikely to be a major hurdle. This is because the company’s senior executives — holding a combined 46% stake — have already agreed to vote in favour of the transaction, according to Ant Financial’s statement.
The deal is, however, still subject to regulatory approvals including from the Committee on Foreign Investment in the United States (CFIUS). There is a risk the deal could fall at that hurdle, since money transfer is seen as a sensitive business, said a source familiar with the company.
Citigroup advised Ant Financial on the transaction while Bank of America Merrill Lynch advised MoneyGram.
