Barclays’ efforts to sell a stake in its UK merchant payments business are encountering significant challenges, with diverging valuation expectations emerging as a major stumbling block.
Reports suggest that potential suitors, including Canadian asset management giant Brookfield, have stepped back from bidding due to misalignment on the business’s worth.
Barclays hurdles in merchant payments sale
Complications in Valuation
Initially valued at over £2 billion ($2.5 billion), Barclays has seen its expectations adjusted downward, with recent discussions pegging the valuation closer to £1 billion ($1.3 billion).
Declining market share, coupled with necessary investments to reinvigorate growth, have contributed to the more conservative estimates.
Brookfield, which manages over $825 billion in assets, re-entered talks recently after earlier negotiations stalled.
However, reports indicate that a deal under consideration might involve Brookfield absorbing costs to grow the business rather than paying a significant upfront sum for a controlling stake.
Compounding these issues is Barclays’ partner, Takepayments, whose acquisition has reportedly complicated revenue projections.
Such developments add layers of complexity to an already intricate sale process, which CEO C.S. Venkatakrishnan described as being weighed down by the division’s technical and financial intricacies.
Barclays’ struggles mirror broader challenges in the European payments sector, where giants like Worldline, Nexi, and Adyen have experienced revenue pressures and valuation contractions.
The ongoing market turbulence underscores the difficulties in finding buyers willing to invest heavily in payments businesses amidst such uncertainty.
The sale is part of Barclays’ broader strategy to streamline its global payment operations, which encompass merchant acquiring and credit card services.
Earlier this year, Barclays divested its German consumer finance business, unlocking significant capital and bolstering its CET1 ratio by 10 basis points.
A Path Forward
Barclays says it remains committed to exploring strategic partnerships for its merchant acquiring arm.
The bank aims to retain a minority stake of approximately 20%, ensuring it continues to benefit from the unit’s future growth while transferring the operational and financial burden of scaling the business to its new partner.
As negotiations continue, the outcome will likely influence Barclays’ broader strategic objectives under the leadership of Venkatakrishnan, whose tenure has seen a 90% rise in the bank’s shares over the past year, driven largely by strong investment banking performance.
Barclays’ quest to offload a stake in its UK merchant payments division reflects the evolving dynamics of the payments industry.
Whether through strategic partnerships or partial divestment, the resolution of these challenges will shape the future trajectory of Barclays’ payments business, offering a case study in navigating complex valuations and market turbulence.
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