WEX mulls options for pending eNett purchase

01 May 2020 - 12:00 am UTC

WEX’s [NYSE: WEX] board of directors met this week to examine various options for its pending USD 1.7bn acquisition of two connected travel payments businesses from Travelport, said two sources familiar with the matter.
The strategic rationale behind the acquisition of the eNett and Optal businesses, announced prior to the coronavirus pandemic in January, is still sound, as it will help WEX gain a global footprint in travel payments and leverage economies of scale, one of the sources said.
However, WEX will need to be willing to put up with losses in the short term if it presses ahead with the deal, this source said. Sister companies eNett and Optal specialize in travel payments in Europe and Asia. While they had been growing rapidly through last year, the sector is among those most affected by travel restrictions and lockdowns put in place to combat the pandemic. WEX, which processes payments for travel, corporate, healthcare and fuel purchases, is similarly exposed.
The first source and a third source familiar with the matter said one option for WEX to explore would be to seek a cut in the purchase price from Travelport, which is backed by Siris Capital and Evergreen Coast Capital, a fund affiliated with Elliott Management.
Since the acquisition is structured using USD 1.275bn in cash and 2 million WEX shares, though, the purchase price is already effectively lower, given the 45% decline in WEX’s share price since the 24 January deal announcement, the first source said.
A sector advisor said it is unclear on what grounds WEX could attempt to walk away from the deal if it wanted to, given that the terms of the asset purchase agreement specifically preclude a pandemic from constituting a material adverse effect.
The outcome of the WEX board meeting could not be learned. The South Portland, Maine-based payments technology company is scheduled to report 1Q20 earnings on 7 May.
The company may need to raise equity capital via a PIPE if it elects to proceed with the acquisition, said two sector advisors. A PIPE transaction with a private equity firm would ensure WEX does not take on too much leverage, the first sector advisor said. A convertible bond offering could be another option, said the first source.
Under the original deal structure, WEX secured USD 1.4bn in debt financing commitments to back the purchase from a syndicate of banks led by BofA Securities. The company’s estimated leverage would stand at 4.5x EBITDA at the close of the transaction and would quickly decline thanks to strong cash flow.
WEX, Travelport, Siris and Elliott declined to comment. 

by Yizhu Wang, Bhavna Kaul and Jay Antenen