Business payment company Fleetcor Technologies Inc. is considering splitting up its core businesses and is attempting to speak with "dance partners" in each of its main units to evaluate whether a transformational merger can help maximize shareholder value, said Steve Greene, the company's executive vice president of corporate development and strategy.
"We are talking to people in each of the three verticals — the vehicle payments business, the corporate payments business and lodging — and seeing if there's a compelling strategic rationale and would it unlock a fair amount of shareholder value if we consummate one of those deals," Greene said in an interview.
The consideration is part of a strategic review begun with its shareholder D.E. Shaw Group, and Goldman Sachs Group Inc. is serving as the financial adviser, Greene noted. In March, the Atlanta-headquartered company entered into a cooperation agreement with affiliates of D.E. Shaw. As part of the agreement, Fleetcor appointed Rahul Gupta as a new board member and agreed to add another, mutually agreed-upon board member.
Fleetcor provides fuel cards to the commercial fleet industry and develops closed-loop payment rails to ensure that commercial drivers only use the cards for business purposes, such as paying for fuel and toll fees. Open-loop payment rails built by card networks like Visa Inc. and Mastercard Inc. are designed for transactions accepted universally.
Vehicle and mobility payments is the company's largest unit and accounted for 57%, or about $2 billion, of its 2022 total revenue, according to a June investor presentation. In the same year, corporate payments solutions generated about 23% of total revenues, or $782 million, and lodging solutions accounted for 13%, or $442 million. Fleetcor had a market capitalization of just over $19 billion as of July 14.
Along with the strategic review, Fleetcor still maintains its previously stated goal of deploying $1 billion of capital per year for M&A, Greene said. That typically translates into adding approximately $100 million of EBITDA via inorganic growth, but it could vary depending on valuation multiples, Greene said.
The company had been focused on smaller targets over the past two to three years, given the prior high valuation in the marketplace, but it is now shifting the emphasis to larger deals, Greene said.
Selling noncore assets
In recent years, Fleetcor has been an active acquirer. J.P. Morgan Securities analyst Andrew Polkowitz said Fleetcor Chairman and CEO Ron Clarke runs the business almost like a private equity shop and looks to add assets that can add differential value. Polkowitz said the Fleetcor leadership team has carefully managed the company's profitability, but an acquisition spree often adds pressure on implementation and creates distractions in terms of how investors view the core of the business.
"The business has gotten more complex for a new investor or a new person to learn," Polkowitz said in an interview.
Streamlining its businesses has been an ongoing project within Fleetcor. The company has actions in motion to sell some noncore assets, Greene said.
"A big priority for us is to simplify the company," Greene said.
Bloomberg reported in May that Fleetcor is mulling a sale for its prepaid card business. Greene declined to comment on specific processes but noted that the prepaid card business is a noncore asset accounting for about 5% of total revenues.
The ongoing efforts to simplify the company can eventually surface a high-growth corporate payments business, according to a report by J.P. Morgan's Tien-Tsin Huang, Polkowitz and Reginald Smith. They maintain the view that Fleetcor is undervalued and has an attractive growth and margin profile.
Competition landscape
In the fleet industry, Fleetcor competes directly with WEX Inc. The two companies are estimated to hold roughly 60% of market share in fleet payments, Polkowitz noted.
In corporate payments, Fleetcor provides automation solutions to manage account payables, card issuing processing, and cross-border payments with foreign exchange management.
The corporate payments sector has been a fast-growing area with businesses at scale, such as Bill.com LLC, Coupa Software Inc. and AvidXchange Holdings Inc. The space has no shortage of M&A interest from private equity and strategic buyers. In 2023, Coupa was acquired by an investor group including Thoma Bravo LP for an implied enterprise value of $8.19 billion, and Global Payments Inc. acquired B2B payment company EVO Payments Inc. for $3.03 billion.