Breakingviews - Italy payments deal trades value for state power

The logo of Italian payments group Nexi is pictured outside their headquarters in Milan, Italy, March 28, 2019.

MILAN (Reuters Breakingviews) - The Italian state has planted its investment flag in another important industry. Local payments group Nexi’s all-share deal to buy state-controlled Sia will create a 15 billion euro domestic champion ready to expand abroad. Sovereign wealth fund Cassa Depositi e Prestiti, which will own 25% of the combined group, appears to be trading value for future board influence.

The payments industry is in the middle of a consolidation frenzy as the pandemic accelerates a shift towards digital transactions. Absorbing Sia will help Nexi boss Paolo Bertoluzzo close the gap with rival Worldline. The French group is worth 13 billion euros but in the process of completing its 8 billion euro takeover of Ingenico.

Nexi’s deal will also strengthen its grip on the Italian market, where digital payments account for a smaller proportion of total transactions than in other European countries but are catching up quickly. The two players are complementary. Nexi is more focused on serving consumers and businesses, while Sia concentrates more on institutional clients such as the public sector and central banks.

Nexi’s offer values Sia’s equity at around 4.6 billion euros, for an enterprise value of 5.6 billion euros after including the company’s net debt. That’s about 20 times Sia’s EBITDA last year, in line with Nexi’s current valuation of 21 times, according to Refinitiv data. But the multiple falls to less than 14 times EBITDA after factoring in expected annual synergies of around 135 million euros a year.

What CDP is giving up in value it is gaining in terms of governance, however. Even though it will own just a quarter of the combined group, the state investor has negotiated the right to appoint up to six of Nexi’s 13 board members. As Nexi’s private equity owners gradually sell down their 23% shareholding in the enlarged company, CDP will cement its influence.

The payments deal is the latest in a string of actual or potential investments by CDP into sectors ranging from telecommunications, stock exchanges and motorway infrastructure. It’s a fresh market test for Rome’s growing appetite to sink its claws into industries the government deems key to the Italian economy.


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