- One-click payments firm strikes crucial scale deal
- Analysts estimate rough $10 million cash cost
- Revenue forecasts rise more than 40%
One-click mobile payments firm Bango (BGO:AIM) is taking out one of its chief competitors in emerging markets as it expands its direct carrier billing footprint.
DOCOMO Digital is the global payments business of NTT DOCOMO (9437:TYO), one of Japan’s largest mobile phone networks.
The payments arm being bought partners with 60 mobile network operators with more than 1.9 billion users and 30 merchants, including multinationals such as Shopify (SHOP:NYSE) and Amazon (AMZN:NASDAQ).
‘Based on channel checks, DOCOMO Digital is a dominant direct carrier billing platform in Japan, Europe, Middle East and Asia, and in Latin America,’ said analysts at investment bank Berenberg.
DCB payments allow mobile users to add charges for stuff bought online to their mobile bill, an easy one-click option that also strips out the need to input credit or debit card details.
On the face of it, Bango will pay €4 million cash yet the deal is more complicated as DOCOMO Digital reportedly has €3.1 million of its own net cash, while there will be significant restructuring costs and assets write-offs which together Berenberg estimates at $30 million.
‘Importantly, of this total, we understand cash charges are only circa $10 million’, calculates Berenberg. ‘We estimate an implied value for DOCOMO Digital of circa $10.9 million and an implied transaction multiple of 0.7-times EV/sales, or enterprise value to sales.
CRUCIAL SCALE
An estimated $3.5 billion of annual mobile end user spend will be migrated across in time. ‘Scale is key to success in carrier billing,’ said Berenberg. ‘Bango’s acquisition of DOCOMO Digital solidifies its position as the leading independent payments platform in carrier billing in our view.’
Berenberg calculates the deal will add around 21%, 47% and 41% to its full year (to 31 December) 2022, 2023 and 2024 revenue estimates.
But reshaping the acquired business and integrating it will mean a cut of about $4 million to this year’s adjusted EBITDA, or earnings before interest, tax, depreciation and amortisation.
Beyond 2022, Bango expects to realise significant cost synergies, helping push DOCOMO Digital to breakeven next year and a rough $10 million adjusted EBITDA contribution in 2024.
After running the numbers, Berenberg now expects the enlarged Bango business to generate adjusted EBITDA of $4.3 million this year, rising to $12.6 million and $24.4 million in the next two years.
Bango shares jumped 10% in early trading to 171.5p, valuing the company at around £144 million.
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