Paysafe plc just accepted a takeover offer. Is this stock next?

Paysafe Group (LON: PAYS) just received a £2.9bn private equity takeover offer. Could this stock also be a takeover target?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Digital payments companies have enjoyed rapid growth in recent years, as consumers have switched from paying for purchases with cash, to paying online or by smartphone. As a result, it’s no surprise that we have seen consolidation within the digital payments sector this year.

Paysafe Group (LSE: PAYS), which assists businesses and consumers connect and transact seamlessly through its payment processing capabilities, recording a combined transactional volume of $48bn in 2016, is one such company that has recently received a recent takeover offer.

Shares in Paysafe surged in late July, as it received a conditional, all-cash takeover offer from private equity groups Blackstone and CVC Capital Partners at 590p per share. And on Friday, the board “unanimously” recommended the bid by the private equity consortium, stating that an agreement had been reached on the terms of the offer. The deal values Paysafe at £2.9bn, representing a near 60% increase on the company’s market capitalisation at the beginning of 2017.

Looking at the half-yearly report released this morning, it’s not hard to see why the private equity groups wanted to get their hands on it. Revenue for the half-year increased 11% to $538.7m and adjusted EBITDA rose 17% to $169.2m. Meanwhile, adjusted fully diluted earnings per share surged an impressive 25% to 25 cents.

However, in my opinion, it is a shame that Paysafe will be taken private. Fast-growing technology companies can generate amazing long-term returns for shareholders, but with the firm being taken private, it means one less opportunity in the sector for private investors to profit from.

Is this stock a takeover candidate?

Another area that could potentially see consolidation is the defence sector, and one stock that has been touted as a potential takeover target in the past is Ultra Electronics Holdings (LSE: ULE).

The £1.6bn market cap company develops technologies for the defence, aerospace, security, cyber, transport and energy markets, generating around 85% of its revenues from defence and security. With US President Trump planning to spend significantly on defence this year, Ultra Electronics looks well-placed to capitalise.

The company released a fairly lacklustre set of half-year results yesterday that saw revenue down 0.1% to £366.4m and underlying earnings per share up just 0.3% to 58.3p. However, it did say that 2017 will be more heavily weighted to the second half than normal.

The share price has pulled back as a result, and has now declined almost 10% since the beginning of the month. At the current price of 1,953p, the stock now trades on a forward-looking P/E ratio of 14.3, which looks reasonable value for a niche player that is forecast to generate a 5% rise in revenue this year. A forecast dividend yield of 2.5%, covered 2.7 times, also looks attractive.

Given that global political tension is unlikely to dissipate any time soon, in my view the defence sector could offer some attractive returns in coming years, and Ultra Electronics looks to offer potential from both a capital growth and dividend investing perspective.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Ultra Electronics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »