Fleet Card M&A – A Supercharged Market

Navigator Editions: Commercial Payments: Special Edition Navigator, April 2013
By: Frank Martien

Reflecting back on 2012, fleet card M&A activity in the U.S. market reached a crescendo with no less than three significant fleet card program acquisitions – all of which involved activity in the OTR (over-the-road, long haul) segment. Along with a noteworthy number of fleet card business acquisitions, valuations were also quite remarkable with publicly available metrics suggesting these businesses trade at 6 to 7x net revenues (i.e., revenue received from merchant discounts and fleet transaction fees less rebates paid to fleet clients) and 10 to 12x earnings as depicted in Figure 1.

What’s driving interest in fleet card businesses – particularly OTR? Some notable attributes include:

  • An issuing and acquiring / “closed-loop” business. Most major fleet card businesses operate proprietary payment networks, sign merchants, set merchant transaction fee pricing, and originate fleet card accounts.
  • Compared with other types of payment cards, substantially larger per-transaction amounts and higher annual per card spend since a typically 18-wheeler holds 150 gallons of diesel1 and burns 20,000 gallons per year2.
  • Ability to generate revenues not only from merchant discounts but also through transaction fees charged to fleet customers at a time when most other types of consumer, small business, and commercial payment card products do not assess per transaction fees to cardholders.
  • Very high ratios of annual spend to average receivables funded since payment terms are almost always pay-in-full / “charge” and billing cycles are often more frequent than monthly and can sometimes be daily.
  • Profit margins approximating 50% based on an analysis of disclosed figures from the T-Chek acquisition announcement.
  • B2B-based business with less regulatory scrutiny than is currently being experienced across many consumer-based card businesses.
  • Some commonalities / managerial / operational synergies across geographic markets.

Looking forward, we anticipate significant continued M&A activity in fleet card as strategic players seek to enhance their market presence in an attractive payments business. This activity could be driven by further consolidation among the U.S. market’s principal fleet card competitors, which include:

  • Comdata (owned by Ceridian);
  • EFS / TCH / T-Chek (privately held);
  • FleetCor (NYSE: FLT);
  • Multi Service (owned by World Fuel Services);
  • Voyager (owned by U.S. Bank); and
  • WEX / Fleet One (NYSE: WEX).

For example, combining OTR and local fleet card capabilities could be achieved through multiple matchups from this list, a fleet card company could be purchased by a major player in commercial cards generally, or we could see an OTR fleet card specialist go public.

1 “The New Truck Stop: Filling Up With Natural Gas for the Long Haul,” National Geographic News, March 18, 2013.
2 “Natural-Gas Trucks Face Long Haul,” The Wall Street Journal, May 17, 2011.

Figure 1: Selected U.S. Market Fleet Card Transactions In 2012


Source: Ship & Bunker News; The Wall Street Journal; company press releases; 8-K disclosures; First Annapolis multiple calculations based solely on publicly disclosed figures.
1 Along with OTR – fuel card, Multi Service’s website lists several other commercial payments-related product and service offerings.
2 Per WFS’s January 2, 2013 8-K, non-GAAP accretion, which excludes amortization of acquired intangible assets of approximately $0.04 per share, was expected to be $0.16 to $0.20 in the first twelve months. As of February 13, 2013, WFS had approximately 72,204,000 shares of outstanding common stock. The $137 million deal value divided by 16 to 20 cents per share x 72 million shares equals an implied multiple of 10x to 12x forward non-GAAP accretion.
3 “Local” typically refers to fleets operating cars and light trucks.

For more information, please contact Frank Martien, Partner specializing in Commercial Payments, frank.martien@firstannapolis.com.

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