Global Payments CEO Cameron Bready talks about small business banking | PaymentsSource

Global Payments’ migration away from non-core products is accelerating as the payment company looks to supercharge a restructuring that initially fell flat with investors.

The company on Wednesday said it would sell AdvancedMD, a medical software firm, to Francisco Partners for $1.13 billion, and use part of the proceeds to fund a $600 million accelerated stock buyback plan. Global Payments initially acquired AdvancedMD for $700 million in 2018.

Investors cheered the move, with Global Payments stock jumped nearly 5% on Wednesday, a far cry from the 7% dip that followed the firm’s investor presentation in September.

Global Payments is changing how it develops and sells products. It is also stressing its original strategy of enabling small businesses to adopt new payment technology. With the payments industry emerging from an economic downturn over the past two years, Global Payments and its technology-focused payment competitors are pursuing similar strategies, with PayPal investing in AI to improve checkout while shedding non-core products such as logistics, and Block centralizing its development and sales to enhance speed to market. 

“We lost a little focus and tried to be all things to all people,” said Cameron Bready, Global Payments CEO, in an interview ahead of the company’s third quarter earnings report and announced sale of AdvancedMD.

Financial performance

Global Payments on Wednesday reported $2.36 billion in revenue for the quarter ending September 30, up 5.6% from the prior year, and earnings per share of $3.08, up from $2.75 the prior year. That was slightly off Zacks consensus estimates of $2.38 billion and $3.11. Health care has extensive regulatory and specific technology challenges that make it harder to integrate with other parts of Global Payments’ business, Bready said in explaining the AdvancedMD sales during Wednesday’s earnings call, adding that Global Payments’ five-year old merger with TSYS had created an overlap in business over time. 

Analysts praised the AdvancedMD deal, with JPMorgan Chase saying it “didn’t consider AdvancedMD a priority asset,” and William Blair saying the disposition “sharpens focus, reduces exposure to the challenging healthcare market, and generates capital.”

Traditional payments consolidators have relied heavily on M&A to grow, enrich their suite of products and extend their delivery footprints. They are also not as nimble and don’t generate the same organic growth as newer processors like Block, Stripe and Adyen, according to Eric Grover, a principal at Intrepid Ventures.

Global Payments competes with fintechs by offering hands-on service for clients that still prefer more in-person help, Bready said. 

“We do it through direct sales, we have an all-digital channel and self-service, though there’s still a segment of the market that wants to talk to a human being,” Bready said. “Putting a human touch on it is an advantage for us.” 

Global Payments, FIS, Fiserv, Nexi and Worldline are all industrial-strength processors with enormous scale, portfolios of related and putatively complementary payment processing and network assets, according to Grover. “Most of them, however, have struggled to realize real revenue synergies. All of them have been burdened with redundant delivery systems, which over time lets them realize operating synergies, but the rationalization often has a high opportunity cost in foregone organic growth,” he said.

Turnaround strategy

Global Payments was criticized after an investor event in September during which it detailed its restructuring. BTIG downgraded the company to neutral from buy, saying Global Payments stock is in “no man’s land,” while Morgan Stanley analysts said the investor presentation “left something to be desired.” 

The company made several changes as part of its restructuring. It created a line of business that focuses on merchant services, rather than different departments that develop and sell products to merchants. It also consolidated all of its technology assets into a global function to simplify product development. 

“[Global Payments was] a business that grew organically and through mergers and acquisitions,” Bready said. “After a decade of this we took a step back and looked at how we were aligned, and came to the conclusion that this model wasn’t going to drive the next decade.”

Global Payments is betting its traditional focus on small business will enable growth. The company last year inked a deal with Google to build technology for small businesses. Google and Global Payments adapted Google Workspace, Google My Business and Google Ads for Global Payments’ clients, while Global Payments acts as a merchant acquirer for Google. Small businesses have struggled in the past few years, but remain attractive to payment companies as a customer base. American Express, for example, has invested in small business technology and financial services, expressing a willingness to ride out any economic weakness in the sector.

“There’s a huge opportunity in small business,” Bready said in an interview, adding Global Payments is pushing cloud-based point of sale software in the segment to enable businesses to upgrade transaction processing by accessing technology remotely. Like Amex, Bready said there is long-term potential to reach small businesses, and any economic recovery would be a welcome tailwind, but not a necessity. 

“That doesn’t mean we won’t pursue middle market and enterprise businesses, but our priority is small business,” Bready said.A “recovery” for Global Payments that includes rationalizing and simplifying the business will be worthwhile, Grover said, and strengthening its business outside of the U.S. would also be helpful.