By David French, Amy-Jo Crowley, Andres Gonzalez and Pablo Mayo Cerqueiro
NEW YORK/LONDON (Reuters) - Barclays plc is sounding out private equity firms about taking a majority stake in its UK merchant payments business, after overtures to trade buyers yielded muted interest, three people familiar with the matter said.
The bank has been making a number of strategic shifts as Chief Executive C.S. Venkatakrishnan seeks to turn around its performance, including trying to bring in a partner with additional industry "know-how" to expand the UK payments unit, as well as put in extra capital, Reuters reported in September.
Barclays initially talked to specialist payments providers about a deal, but these conversations stalled in the final weeks of 2023 as peers indicated they were not in a position to make an offer, one of the people and a fourth one said.
Now, the bank is targeting buyout groups to buy a majority stake, the people said. Barclays is offering to retain up to 20% in the business, two of them said.
The four sources spoke on condition of anonymity to discuss confidential deliberations.
“Providing leading products, coupled with the best service, is key to us being the bank of choice for our corporate clients’ payments services," a Barclays spokesperson said. "We are exploring partnerships for our merchant acquiring business where the power of that relationship brings complementary expertise to the benefit of our clients.”
The discussions over the UK payments unit are part of a review into Barclays' global payment activities spanning merchant acquiring and credit card services. Barclays has also been marketing for sale its German consumer finance operations.
The UK business could be valued at more than 2 billion pounds ($2.5 billion), based on estimated earnings before interest, tax, depreciation and amortisation (EBITDA) of about 300 million pounds and multiples on similar deals, sources have previously said.
The payments world has seen a pick up in consolidation efforts as increased use of digital technology makes investment costs higher and accentuates the benefits of economies of scale.
For Barclays, though, its talks with trade players coincided with a selloff in the European payments sector last autumn, triggered by concerns over revenue outlooks at Worldline, Nexi (BIT:NEXII) and Adyen (AS:ADYEN).
These slumping valuations, in part, undermined interest in a deal with Barclays, two of the people said.
Private equity firms have invested heavily in the payments sector in recent years, drawn by the wider trend of digitised finance and the ability to scale up investments through merging smaller players into a larger entity.