Credit Suisse says Visa could use the deal to make further progresses in winning more fintech partners
On Monday after market close, Visa (V) announced that the payments company is buying start-up Plaid in a $5.3B deal. Among Plaid's high-profile clients are PayPal's (PYPL) peer-to-peer payment app Venmo, mobile investing app Robinhood and cryptocurrency exchanges Coinbase and Gemini.
VISA ACQUIRES PLAID: On Monday, Visa announced it has signed a definitive agreement to acquire Plaid, a "network that makes it easy for people to securely connect their financial accounts to the apps they use to manage their financial lives." Visa will pay total purchase consideration of $5.3B to acquire the start-up. The transaction is subject to regulatory approvals and other customary closing conditions. Visa will fund the transaction from cash on hand and debt issuance at the appropriate time. This transaction will have no impact on Visa's previously announced stock buyback program or dividend policy. The transaction is expected to close in the next three to six months.
In a research note to investors, Wedbush analyst Moshe Katri raised his price target for Visa to $215 from $195 post “another value-added enhancing transaction,” as the company continues to gradually expand its non-traditional, non-transaction dominating revenue base. Following record M&A activity throughout 2019, the analyst believes the Plaid transaction further reduces Visa's exclusive dependence in ongoing economic activity. He has an Outperform rating on the shares.
'WOO FINTECHS,' NARROW TECH DISCOUNT: Also commenting on the deal and highlighting that Plaid partners extensively with fintechs, Credit Suisse analyst Moshe Orenbuch said he views the start-up acquisition as "definitely a great selling point" Visa could use to make further progresses in winning more fintech partners, particularly if Visa could bundle Plaid services with its existing product suite. This would also solidify Visa's position in next-generation ecosystem by acquiring a top open-banking enabler in the U.S. that has already launched in Europe, he added. Orenbuch believes this is Visa's "biggest deal yet in going after fintechs" after initially losing out to MasterCard (MA) in the period right after the acquisition of Visa Europe, when Visa was more focused in migrating Visa Europe to VisaNet. The analyst has an Outperform rating and $224 price target on Visa's shares.
Meanwhile, Morgan Stanley analyst James Faucette told investors in a research note of his own that he believes Visa's $5.3B deal for infrastructure technology provider Plaid may help Visa narrow its valuation gap with MasterCard. Further, he thinks there is a perception of MasterCard "being more front-footed on tech issues," which he does not believe is actually the case. This deal, along with the recent acquisitions of Earthport and Rambus, should help to improve investor perception, Faucette contended. He maintained an Overweight rating and $220 price target on Visa shares.
PLAID DEAL POSITIVE FOR ENVESTNET VALUE: In a research note to investors after Visa announced it is acquiring Envestnet's (ENV) primary data aggregation competitor Plaid, Jefferies analyst Surinder Thind argued that this is a positive development for the value of Envestnet, which offers integration with twice as many financial institutions through subsidiary Yodlee. The analyst also believes the Plaid deal "arguably increases" the odds of Envestnet getting acquired by a Visa competitor. However, if Envestnet remains a standalone entity, its competitive positioning versus Plaid is now weakened, he contended. Thind kept a Buy rating on Envestnet shares with a $76 price target.
Noting that Visa's acquisition of data aggregation provider Plaid raises the question of whether Envestnet might be best served selling its similar Yodlee business, Raymond James analyst Patrick O'Shaughnessy wonders if a "large financial institution with deep pockets" might be willing to pay a healthy valuation for the business. Selling Yodlee is an option Envestnet's board should be considering, the analyst said, adding that he believes Evestnet's current $3.9B market capitalization "in no way" reflects a potential sale of Yodlee at Plaid's valuation. Based on published media reports, the analyst believes Plaid generated around $150M in revenue in 2019, below his estimate of estimate of $190M for Envestnet's Yodlee. O'Shaughnessy kept a Strong Buy rating on shares of Envestnet.
PRICE ACTION: In morning trading, shares of Visa have gained about 0.5% to $196.06. Also higher, Envestnet has advanced about 0.5% to $74.30.