Nuvei has a 178 per cent upside, says National Bank

National Bank Financial analyst Richard Tse likes the newly announced major acquisition by Canadian fintech company Nuvei Corp (Nuvei Stock Quote, Charts, News, Analysts, Financials NASDAQ:NVEI), saying in a Monday research note to clients that the combined company will generate significant synergies.

Nuvei, a payments platform currently serving over 200 markets worldwide, announced on Monday a definitive agreement to acquire integrated payments and commerce company Paya Holdings for a total consideration of $1.3 billion. (All figures in US dollars.) Atlanta-based Paya serves over 100,000 customers through over 2,000 distribution partners in the B2B space.

Nuvei Chair and CEO Philip Fayer said the deal is a “powerful next step” for his company.

“The proposed transaction will combine two people-first, technology-led, high-growth payment platforms. It will accelerate our integrated payment strategy, diversify our business into key high-growth non-cyclical verticals with large addressable end markets and enhance the execution of our growth plan,” Fayer wrote in a press release.

Nuvei said it would be an all-cash transaction, acquiring Paya at $9.75 per share for about $1.3 billion and representing a 25 per cent premium to Paya’s January 6 closing price and a 30 per cent premium to the 90-day VWAP.

Looking at the deal, Tse said it’s valued at about 13.0x EV/EBITDA on 2023 numbers, including expected cost synergies. Tse said that puts the acquisition in the “not inexpensive” category, given that Paya is expected to grow about about 11 per cent year-over-year in 2023. 

But Tse nevertheless called the deal a reasonable one considering the potential diversification benefits to Nuvei and related synergies, pointing to how it would bring less cyclical markets in the B2B space into Nuvei’s wheelhouse in verticals like healthcare, non-profit, education, government and utilities. Tse said Paya would also give Nuvei greater exposure to the US market, noting that the B2B payments middle market is expected to hit $2.3 trillion in processing volume by 2026 from $1.2 trillion in 2019 for a CAGR of about ten per cent.

“The move should allow Nuvei to accelerate its push to service larger merchants which come with lower churn and are additive to margins given scale,” Tse wrote. “We continue to believe Nuvei is uniquely positioned for growth in a market that’s undergoing a meaningful transformation. Within that market, Nuvei remains a disruptive player with superior growth relative to the sector given its focus on outsized growth markets (vertical and geographic).”

With the update, Tse reiterated an “Outperform” rating on Nuvei and target price of $75.00 per share, which at press time represented a projected one-year return of 178 per cent.