Fleetcor Technologies Inc. will pursue large acquisitions to help build its three core payments businesses, which it decided to keep together after conducting an extensive strategic review, said Steve Greene, the company's executive vice president of corporate development and strategy.
Fleetcor Technologies Inc.The Atlanta-headquartered company will be rebranded to Corpay under the new ticker symbol CPAY, starting March 25, reinforcing the message that it is no longer a fuel card specialist as founded. Besides vehicle payments, its two other core businesses are corporate and lodging payments, which respectively accounted for 26% and 14% of its total revenues in 2023.
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Steve Greene, M&A head |
"All three of those categories have billion-dollar plus acquisition targets that we could go chase now," Greene said in an interview. "The bigger the company we can buy, the better, because it can help us advance and grow earnings faster," he added.
A priority in its M&A strategy is to accelerate the growth in corporate payments, Greene said. Fleetcor has solutions automating the workflow around how companies handle account payables (AP), including payment processing, so it is interested in high growth, profitable companies in AP automation. Payments companies that serve corporates' needs in cross-border payments are also of interest, he added.
Fleetcor has over $1.3 billion in capital to deploy for accretive M&A, share buybacks and debt paydown, according to an investor presentation March 6. The company's market share stood at over $21 billion as of March 13.
Fleetcor would like to keep the cash flow leverage ratio below 3x, and could afford transactions in low single-digit billions without needing to issue new equity, Greene said.
Although high interest rates continue to weigh heavily on the M&A market, Fleetcor would not hold back, Greene said. Synergies in its strategic acquisitions can help it create returns for shareholders, even if the cost of capital remains high.
"We have a way of creating returns that maybe a financial buyer doesn't have in their toolkit," Greene said. "We're not waiting for interest rates to come down. We are on the front foot and want to go do deals."
Vehicle payments business underappreciated
The focus on large acquisitions comes as Fleetcor recently concluded an 11-month strategic review about whether and how to split its core businesses to unlock shareholder value.
It reached a conclusion and would not pursue a split-up at this point, Fleetcor's chairman, president and CEO Ron Clarke told analysts on the company's latest earnings call Feb. 7.
The process started with exploring a straight-up separation of its corporate payments business, but it saw uncertainty in valuation multiples of the remaining company, Clarke said on the call. It then pivoted to search for merger partners with scale and synergies in each business line, and engaged with three or four partners, but it did not find anything appealing for various reasons including weaker-than-expected synergies, valuation gaps, and social issues in one case, Clarke added.
While the corporate payments unit is being highly valued by investors for its strong growth and high profitability, the vehicle payments business is in particular underappreciated by the market, Greene explained. And how Fleetcor handles the vehicle payments unit would have a dramatically higher impact, given it accounting for over half of its total revenues, he added.
"We need investors to appreciate the vehicle payments business more in our belief and value that business higher," Greene said. "We firmly believe that doing more with our vehicle payments business will create more value for our shareholders than splitting it off right now."
Making vehicle payments more attractive
In recent years, revenues from corporate and lodging payments have taken up a larger proportion of Fleetcor's total revenues. Net revenues from vehicle payments have decreased to 53% of its total revenues in 2023, from 57% in 2022 and 60% in 2021.
Still, Fleetcor will continue to invest in vehicle payments and broaden its growth potentials, by adding new services to commercial drivers globally, and making inroads into consumer use cases, Greene said.
The vehicle payments unit has historically been a fleet card business, enabling commercial vehicle drivers to use the card only to pay for gas and related expenses. It has added other services such as payments for parking and toll fees, as well as cross-selling insurance, Greene said. In September 2023, it acquired global digital parking company PayByPhone Technologies Inc.
In addition, Fleetcor is extending its existing capabilities in commercial payments, such as networks of street parking and maintenance services, to consumer use cases, Greene said. Fleetcor closed a majority investment in Zapay Pagamentos on March 6, whose mobile application and website are being used by 2 million consumer drivers each month to pay vehicle taxes, registration and tickets in Brazil.
Though small, the investment is an early indicator that Fleetcor is serious about its ambitions to broaden its vehicle payments strategy, particularly on the consumer side, JPMorgan Securities' analysts Tien-tsin Huang and Andrew Polkowitz wrote in an equity research note.
"We have very attractive capabilities in networks in the vehicle payments business, and we believe we can use those capabilities and networks to provide a compelling solution for consumers," Greene said.