By Esha Vaish and Simon Jessop
(Reuters) - Private equity firms Blackstone and CVC Capital Partners [CVC.UL] joined a rush to snap up payments companies on Friday with a 2.9 billion pound ($3.7 billion) bid for Paysafe Group.
Britain's Paysafe, which offers pre-paid cashcards and online wallets, said separately it was also planning to buy Merchants' Choice Payments Solutions for $470 million, strengthening its presence in the United States.
Payments companies have become sought-after targets as more shoppers switch from cash to paying for purchases by smartphone or other mobile devices and a series of deals has driven share prices in the sector higher in recent weeks.
Mastercard made the first move last year by buying Britain's Vocalink and deals have picked up in recent weeks.
Danish payment services firm Nets A/S said in early July that it had been approached by potential buyers, while days later U.S. credit card processor Vantiv agreed to buy Britain's Worldpay for 7.7 billion pounds to expand outside the United States.
That has been followed by a 1.5 billion euro bid on Thursday for Stockholm-based Bambora by France's Ingenico, and, on Friday, news that private equity firm Permira had bought a stake in Sweden's Klarna.
Paysafe said it had been approached in early May, when its shares were trading at about 450 pence, banking sources said.
Shares in Paysafe were up 7.4 percent to 582.5 pence a share at 0955 GMT, leading the gainers in Britain's mid-cap index but slightly below the 590 pence per share proposed offer price.
If successful, the private equity bid would mark a return to the payments sector for CVC. It previously owned Skrill, a payments company which was bought by Optimal Payments, the AIM-listed forerunner to Paysafe.
"CVC knows the space extremely well," said a banking source, adding Paysafe had a "very positive" outlook with some strong growth fundamentals given the drive to go cashless.
"And that's the reason why they (CVC) are interested. They know the actors, they like the dynamics around the sector, which is underpinned by growth."
CVC and Blackstone have until Aug. 18 to make a formal offer. Lazard are lead advisors to Paysafe, while Credit Suisse is working with CVC.
OLD MUTUAL ON BOARD
Paysafe said that after turning down a number of indicative proposals, it had granted the bidders due diligence access on the basis of the 590 pence per share proposal.
The deal is conditional on the buyers being able to sell off Paysafe's Asia Gateway business, with a buyer already lined up, although no further details were given.
A source with knowledge of the situation said Blackstone and CVC's experience of a partnership in British group Merlin Entertainments made them a good fit.
And a source familiar with CVC's thinking said that Paysafe was potentially a good buy given its current valuation and the consortium's ability to add further value.
UBS analyst David Mulholland said the deal value implied a valuation of 14 times Paysafe's estimated 2018 price-to-earnings ratio and 10.4 times enterprise value to earnings before interest, tax, depreciation and amortization.
Old Mutual Global Investors, Paysafe's largest shareholder with a stake of about 10.3 percent in the group, has signed a non-binding letter of support for the possible offer.
Paysafe said its deal for Delta Card Service Inc, the holding company for Houston-based Merchants' Choice Payment Solutions ("MCPS"), will see Paysafe add around 60,000 clients across 50 states and over $14 billion in sales volume annually.
The cash deal will be part-funded by $380 million in bank loans and $90 million from existing cash funds, it added.
"We would initially highlight that on first impressions the acquisition appears to make sense, (but) is not a particularly high multiple in the context of payments," UBS's Mulholland said in a note to clients, flagging a 'buy' rating.
(Reporting by Esha Vaish in Bengaluru and Simon Jessop in London; editing by Keith Weir and Alexander Smith)