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Canadian payments company Nuvei may not be as big as its competitors FIS, Global Payments, or Worldpay, but it is carving out a niche in the industry by finding solutions for smaller companies in tougher situations.

Nuvei has described its business to investors as “messy payments,” which includes working with gambling companies, digital retailers in Latin America, or European online stores that need specialized payment options.

That kind of niche payments business attracted the attention of private equity sponsor Advent, which is taking the business private in a deal valued at $6.3bn.

Nuvei stock rallied by $10 per share following the take private announcement in Match (via Google)

To fund the transaction, RBC is leading a $2.55bn TLB due 2031 that is talked at S+300bps-325bps with an OID of 99.75. Commitments are due 19 July. The deal will not only take the company private but also repay its existing $1.275bn TLB due 2030, which was issued in December last year.

While the new deal will increase leverage, there is good reason to think Nuvei can continue its expansion into international markets and deleverage relatively quickly.

“I've bought into their niche end markets and see areas like sports gambling and global commerce driving growth,” one analyst said. “It seems like they can add some value that way and protect their business versus some of the other larger companies doing that.”

Still, others remain concerned about leverage and how Advent will run the company in private markets.

Nuvei says net leverage is set to rise to around 4.9x following this transaction, up from 2.5x at the end of last year.

However, rating agencies and investors following the deal say leverage will be closer to 6x after stripping some of the add-backs baked into the marketed $499m pro forma adjusted EBITDA figure.

That resulted in a one-notch downgrade from S&P to B+, while Moody’s maintained its Ba3 rating.

Even at 6x leverage Nuvei is below a 50% loan-to-value ratio, which is keeping investors involved at those levels.

“Their adjustments and their EBITDA number are a little aggressive in some areas,” the analyst said. “Like a lot of buyouts, they're pushing the edge of where leverage could get to, but it's not super unreasonable.”

Some of the adjustments include further synergies for Nuvei’s $1.3bn acquisition of US payments company Paya, which closed in February 2023.

The acquisition propelled Nuvei into US business-to-business end markets such as healthcare, non-profit, government, and utility payments, which helped grow adjusted EBITDA by $86m to $437m last year.

“We like Nuvei’s business due to its recurring revenue, and that it seems to be growing at double digits,” one buysider said.

But investors are also mildly concerned about a $224m long-term employee incentive program, which Nuvei may have to pay out in cash as those stock options vest.

As a public company, those incentives could be paid out in equity, but once Nuvei becomes private it will need to pay those out in cash or hold them until there is another change of control event, the analyst said.

“They've accounted for some of that in their sources and uses, but it’s going to be another persistent drag on cash that's going to make it look worse than normalized free cashflow would be,” the analyst said.

With any new sponsor, there is an increased risk of more aggressive financial policies, and with Advent that could include combining Nuvei with one of its other existing portfolio companies.

Advent has been active in the payments space over the years investing in companies such as Europe-based Mangopay, Argentinian payments company Prisma Medios de Pago, and myPOS, which became Circle.

The company most cited by investors as a possible combination with Nuvei was Advent’s Xplor, which itself was formed in 2021 from combining other payment companies within the sponsor's portfolio such as Clearent, FieldEdge, and Transaction Services Group (TSG).

However, some buysiders cautioned that Xplor’s fit with Nuvei may not be all that clean (though they both have some flashy marketing campaigns including Nuvei’s cameo with actor and investor Ryan Reynolds.)

Deadpool actor, Canadian, and Nuvei investor Ryan Reynolds (via YouTube)

Whether it’s through M&A or organically, most see a lot of growth ahead for Nuvei.

“There’s a vast amount of organic growth opportunities that lie ahead for them whether it be wallet share expansion, B2B verticals via its acquisition of Paya, or geographic expansion, especially in Latin America,” S&P Global Ratings director Steve McDonald told 9fin.

“Those remain untapped opportunities, even in the context of what they were pursuing before the transaction, and those opportunities underpin both our deleveraging expectations and views around financial policy.”

Advent looks to expand Nuvei’s niche payments business through LBO

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