Fiserv's Monitise Acquisition Faces Shareholder Hurdle

Reportedly, Fiserv Inc (NASDAQ:FISV)’s (NYSE:V) plan to acquire Monitise has suffered a setback after a top shareholder of the British financial services technology firm announced that it would vote against the deal. Cavendish Asset Management, which owns almost 4.84% stake per Reuters, stated that Fiserv’s offer of £70 million (almost $89.35) was too low.

Fiserv’s offer of 2.9 pence in cash per share represented a premium of 26.1% as compared with Monitise’s closing share price of 2.30 pence on Jun 12. According to Reuters, Monitise had considered the terms to be “fair and reasonable” at the time of announcement.

Following the acquisition news, Montise’s share price surged almost 22.2% to close at 2.81 pence on Jun 13. The share price momentum continued over the next two trading sessions and closed at 2.84 pence on Jun 15. Even when compared with this level, Fiserv’s offer price still presents a premium of 2.1%.

We note that Fiserv’s share price inched up 0.7% to close at $125.47 on Jun 15. The stock has return 18.1% on a year-to-date basis, outperforming the S&P 500’s gained of 9.3%.

Why Did Fiserv Chose Monitise?

Monitise is a top brand in the digital banking arena due to its robust product portfolio and strong clientele. Moreover, the company has significant geographic penetration into European and Middle-East markets. These factors were a major attraction for Fiserv.

Per Reuters, Monitise was worth £2 billion at its peak in 2014. However, the company lost most of the valuation due to weak execution and stiff competition from free mobile payment solutions provided well established players like Alphabet (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) .

Notably, revenues plunged almost 25% over fiscal 2015 to £67.7 million in fiscal 2016 primarily due to these factors. The first half of 2017 also didn’t get any better, as revenues continued to decline (down 15.6%). However, EBITDA decline moderated reflecting positive impact from restructuring, which resulted in lower operating expenses.

We note that management has been trying to reinvigorate the business in recent times. The company relaunched Create platform as Big Radical, gaining a number of customers in first-half fiscal 2017.

Moreover, Monitise’s cloud-based FINKit platform (focused on the U.S. and U.K. market) has gained significant interest within a short-span of time since its launch in fiscal 2016. The company stated that the platform has significant growth opportunities owing to increasing regulatory requirements related to compliance and digital banking.

Monitise’s Growth Potential to Boost Fiserv’s Offer?

We believe that if the acquisition proceeds as planned, it will significantly boost Fiserv’s capabilities in providing mobile payments solutions globally. This market has immense growth opportunities, according to Visa (NYSE:V) , which believes that by 2020 “mobile payments could become the preferred method of both consumers and merchants.”

Per data from epam, the market for mobile payments is anticipated to be worth $720 billion in 2017, a significant increase from $235 billion in 2014.

According to Juniper Research, number of people using a mobile device to conduct some form of banking (either account management or payments) is expected to reach 2 billion in 2018, which is almost 38% of the population. This reflects the growing importance of mobile banking, which is simply hard to ignore for banks and financial service providers like Fiserv.

Considering Monitise’s robust product portfolio and growth potential we believe that the current valuation is quite cheap, making it an attractive investment. This along with the shareholder activism may prompt Fiserv to raise its offer price going forward.

Currently, Fiserv carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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