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Executives

Mike Salop - SVP, IR

Hikmet Ersek - President and CEO

David Sear - Managing Director, Travelex Global Business Payments

Scott Scheirman - EVP and CFO

Raj Agrawal - General Manager, Western Union Business Solutions

Analysts

Kartik Mehta - Northcoast Research

Andrew Jeffrey - SunTrust Robinson Humphrey

Darrin Peller - Barclays Capital

Julio Quinteros - Goldman Sachs

Chris Lamoni - Deutsche Bank

Ashwin Shirvaikar - Citi

Tim Willi - Wells Fargo

Tien-Tsin Huang - JPMorgan

Glenn Fodor - Morgan Stanley

The Western Union Company (WU) Acquisition of Travelex Global Business Payments Conference Call July 5, 2011 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Western Union conference call. My name is Katie and I will be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions)

I’d like to now hand the call over to Mike Salop, Senior Vice President of Investor Relations. Please proceed.

Mike Salop

Thank you and good morning everyone. Thanks for joining us to discuss this morning’s announcement that Western Union has agreed to acquire the Global Business Payments division of Travelex Holdings Limited.

On the call today from New York are Hikmet Ersek, our President and Chief Executive Officer; Scott Scheirman, Executive Vice President and Chief Financial Officer; Raj Agrawal, General Manager of Western Union Business Solutions; and David Sear, Managing Director of Travelex Global Business Payments.

The slides that accompany this call and webcast can be found at WesternUnion.com under the Investor Relations tab and will remain available after the call. We will take questions after our comments, but we ask that you keep your questions limited to today’s announcement about the acquisition. We will report our second quarter earnings on July 26th. This call is being recorded and our comments include forward-looking statements. Please refer to the cautionary language in the press release and Western Union’s filings with the Securities and Exchange Commission including the 2010 Form 10-K or additional information concerning factors that could cause actual results to differ materially from the forward-looking statements.

All statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay, Western Union has not authorized and disclaims responsibility for any recording replay or distribution of any transcription of this call.

I’d now like to turn the call over to Hikmet Ersek.

Hikmet Ersek

Thank you, Mike. And welcome to everyone on the call. I’m very excited to talk to you about our planned acquisition of Travelex Global Business Payments. We believe this is a great strategic fit and will generate incremental long-term growth for Western Union and deliver a strong financial returns for our shareholders.

As we discussed at our Investor Day last September, our vision is to become the brand and network for moving money with the focus on underserved customers, for example, immigrants and their loved ones as receivers in emergent markets, bill payers, small businesses, bank and other financial services. Just to remind you, over 70% of our international money transfer agent locations are banks and post banks, which partners with us because we provide the level of service to their customers which they cannot deliver on their own. To support our vision we have targeted three key strategic growth areas. Consumer money transfer, stored value, and business-to-business payments.

Consumer money transfer represents the majority of our revenues to-date. Ideally the business, this will continue to be our main growth engine, but we are also in the process of building second and third legs of growth. In stored value and prepaid we are still in early days of developing our business and revenues are still fairly small. In international business payments though the combination of Travelex Global Business Payments and Western Union Business Solutions immediately gives us a leading position. We expect these combined businesses to generate approximately $400 million of revenues in 2012. In each of these three strategic growth areas, we focus on underserved customers and leverage Western Union key competitive advantages as our global brand, our West agent network, our cross-border regulatory and compliance expertise, our range of send and deliver options, and our consumer and customer relationships. Each strategic growth area represents a large market opportunity and long-term market growth projections are good.

We have very focused growth strategies for each of these key priorities. In consumer money transfer we plan to continue gaining share in the long-term growth market through further agent location expansion with a particular emphasis on Asia, European retail and banks in the U.S. Strategic marketing and reaching new consumers to further development of electronic channels, including WesternUnion.com, account-based money transfer, and mobile. In stored value, we are leveraging our brand, consumer relationships and global agent network. In the U.S. we will continue building awareness and expanded distribution overtime and internationally expansion plans are in progress for several markets.

Our third growth area is business-to-business payments. We entered this market in 2009 with acquisition of customers which we renamed to Western Union Business Solutions last year. Business Solutions provides cross-border business payment services primarily to small and medium sized enterprises, or so called SMEs, often small importers such as furniture stores, or local coffee shops. SMEs like our core money transfer consumers are generally underserved by banks, business payment providers and face challenges in meeting their cross-border payment fees.

Western Union Business Solutions generated just over 110 million in revenue in 2010 and is now already active in 9 countries. We have also recently signed several of our money transfer agents to distribute the services in the new markets, including the Philippines, Peru and the United Arab Emirates which will be activated very soon.

Acquisition of Travelex Global Business Payments provides our business-to-business operations immediate scale, further geographic reach, additional customer opportunities, and added product capabilities. We believed the combined resurgent of Travelex Global Business Payments and Western Union Business Solutions sets the stage for a long-term growth and it is a large growing market. Global trade is the engine that drives business-to-business cross-border payments.

After a brief downturn due to global recession, global trade is growing strong again, and it's projected to increase in the high single-digits over the next several year's. The SME cross-border payments market alone is estimated at $24 billion in revenue which will make it similar in size to the consumer cross-border immigrants market. Market is very fragmented often served by local bank branches and customers generally have challenges obtaining the service, speed, accuracy and product offerings they desire.

This situation provides the opportunity for Western Union and we are very excited about the growth possibilities from combining the strength and efforts of Travelex Global Business Payments, Western Union Business Solutions and top of this the Western Union Company.

Now to tell you more about Travelex Global Business Payments, I’d like to introduce David Sear who is the Managing Director of the Travelex Global Business Payments Division. David has been with Travelex since 2006 and he is responsible for the worldwide operations of global business payment. David is joining us today from London. David.

David Sear

Thank you, Hikmet. I’m very happy to be here with you today, and I have to say really looking forward to joining forces with Western Union to drive this business in the future. I’d like to give you all a brief overview of Travelex Global Business Payments or TGBP. We are a leading provider of international business payment with over 35,000 customers across 14 countries. Our business clients include small to medium sized enterprises, SMEs, but also slightly larger organizations and third party distribution partners. Over 500 financial institutions use our platforms to provide business payment services to their customers and we also provide services to universities and law firms.

We anticipate 2011 revenue to be approximately £150 million with normalized EBITDA margins of around 30%. Over 75% of our revenues are derived from the UK, the U.S. and Australia. We have established a leadership position in business payments by providing a strong value proposition to our customers. Our foreign exchange and payment expertise, technology platforms, product capabilities, and local payments network allow us to provide strong service to business customers.

Both of our customers use TGBP, because they are often faced with high fees an certain foreign exchange rate and late or even failed payment through local and international bank providers. Simply put customers need to know how much money will arrive in a beneficiary bank account and when it will arrive. Our challenge, our specialist online solutions have been designed to meet our B2B cross-border payments.

Our SME customer base stretches across 14 geographies and provide innovative online access to specialist importers and exporters to pay suppliers around the world. We give them access to sophisticated technology and a local clearing network in over 70 countries which translates into quick, simple and cost effective solutions to global trade. Corporate clients with diverse international operations also benefit from our solutions. For example, customers in a travel sector have an everyday need to move money around the world for their suppliers. Clients like the all seasons hotel chain and Australia’s flight centers have chosen our service due to its global reach and technical integration capability.

We also provide services to third-party distribution partners such as financial institutions. They outsource the processing of international payment, the TGBP for our capabilities and to avoid the expense of the traditional correspondent banking networks. We provide services to over 500 financial institutions in North America and Australia. And we recently this year added Rakuten Bank in Japan, one of the largest online banks in that country.

So, a combination of great service, online technology, global presence and in deed the global brand that Western Union provides will allow the business I believe to add many more customers around the world over the next several year's.

Now I’m going to turn the call over to Scott Scheirman.

Scott Scheirman

Thank you, David. I will provide you with a quick financial overview of today’s announced acquisition. Western Union has agreed to acquire the Travelex Global Business Payments division from Travelex Holdings Limited for £606 million. This is a cash purchase and the funds for the transaction will be sourced primarily from the company’s international cash balances. As a reminder we had $2.2 billion in cash on our balance sheet at the end of the first quarter of which about half was international cash. As we stated during our first quarter earnings call, we also expected to generate between 1.2 and $1.3 billion of operating cash flow in 2011. We anticipate that Travelex Global Business Payments acquisition will close late this year after certain closing conditions are met and we receive the necessary regulatory approvals.

Revenues for the combined global business payments in Western Union Business Solutions businesses are expected to approximately $400 million in 2012 with a growth projected around 10% compounded annual growth rate over the next three year's. It will take some time to complete the integration and combined complimentary assets, however, we believe there are significant opportunity to accelerate growth over the longer term, once our strategies are fully implemented.

Integration costs are expected to be approximately $70 million over two year's as we combine the two businesses with the majority of expenses anticipated to occur in 2012. Synergy savings will be generated from areas such as IT, operations and real estate, they are estimated to be about $30 million annually after completing the integration.

We expect non-cash amortization expense related to the acquisition to be approximately $40 million annually beginning in 2012. As a result of the factors the transaction is expected to be dilutive to GAAP EPS by approximately $0.02 in 2011 and by approximately $0.04 in 2012 due to the deal integration and non-cash amortization expense. However, on a cash basis the acquisition should be accretive in 2012. We anticipate the acquisition to be accretive to GAAP EPS in 2013 by approximately $0.04. I should also mention that shifts and timing of the integration activities could alter the yearly impacts. Overall, we believe this acquisition is a compelling investment of our international cash that will generate strong cash returns for our shareholders based on reasonable and achievable business forecast.

Before I turn the call over, I’d like to mention that we will be releasing our second quarter earnings on July 26th. We still have to close our books but in general I can tell you business trends were inline with our expectations.

Now to talk more about the benefits of today’s acquisition in our B2B growth strategies, I’d like to turn the call over to Raj Agrawal. Raj is the General Manager of Western Union Business Solutions and will be managing the combined business following completion of the acquisition.

Raj Agrawal

Thanks Scott. I’m also very excited about the growth opportunities available as a result of this acquisition. The combination of these businesses provides us a strong foundation in the market. First, we will immediately expand our geographic reach. Western Union Business Solutions have active presence in nine countries with the largest business in Canada. Travelex Global Business Payments is present in 14 countries including seven that are not covered by Western Union Business Solutions. Its largest business is in the UK and it also has a strong business in the U.S. So, combined we will have immediate presence in 16 countries with money transfer agents signed in three additional countries that plan to begin distribution later this year.

Combined company will have a global sales force of over 450 people, proven leadership and expertise in international business payments and expanded product and functionality capability. Each business has unique capabilities that can be leveraged including more online offerings, different customer segment expertise and global banking and local payment network connections to facilitate our payments.

Having this combined business under the Western Union umbrella also brings important benefits. Western Union brand is a well known around the globe and will help us gain presence in new markets. The company’s financial strength will allow for investment and convey credibility to potential customers. We will also leverage Western Unions global licenses to enter new markets and offer distributions through money transfer agent network in certain countries.

So, the foundation created by combining the Western Union Business Solutions organization with Travelex Global Business Payments opens the door for accelerated growth opportunity. I’ve been in the market over the past year and I can tell you there is a strong need for these services. I heard first hand from customers that challenges they have in making international payments and how Western Union Business Solutions has provided them much needed solutions.

Let me give you one typical example, this is a testimonial from one of our customers, the CFO of a mining company based in Canada. Here is the quote, thanks to Western Union Business Solutions online payments platform, we can now send payments to fund our international projects from anywhere on any computer 24 hours a days, 7 days a week. We have simultaneously lowered our cost and increased efficiency in our international payments processes. It customizes the platform to meet our specific requirements for multiple booking authorization levels and comprehensive transaction reporting. And even though we use the online services, the Western Union Business Solutions team is readily available to provide assistance and expert advice. That quote is just one of many such examples of these customers and our customer retention rate is extremely high.

Combining Western Union Business Solution with Travelex Global Business Payments gives us even better propositions for customers. After the transaction closes we will be focused on several avenues of growth including geographic expansion, product expansion to existing customers and new customer distribution. The geographic expansion we planned to leverage the combined product offerings and capabilities, it combine local payment network connection, a Western Union licensees, the Western Union brand and financial strength and the money transfer agent network capturing new territories.

I have personally met with many of Western Unions money transfer agents around the globe and I can tell you that they are very excited about the possibility of offering these services. And combining the businesses and their capabilities we will also have the opportunity to offer more products and choice to existing customers. We will utilize the Travelex Global Business Payments expertise with third-party distribution partners such as financial institutions in new and existing markets. Western Union also has over 1000 financial institution relationships through its agent network and many of these could benefit from our offerings to service their business customers.

Western Union balance sheet will also give us access to new potential customers around the world and prefer a strong counterparty. So, we believe there are great opportunities to provide a superior international business payments proposition to customers around the world. Leveraging the combined assets of the Travelex Global Business Payments group, a lot of with Western Union Business Solutions and of course, the Western Union brand, resources and connections.

Now I’d like to turn the call back over to Mike to begin the Q&A.

Mike Salop

Thanks Raj. As a reminder given the second quarter just ended we are still closing our book, and we do ask that you limit your questions to today’s acquisition announcement and general overall strategies. Katie we are ready for the first question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Kartik Mehta from Northcoast Research. Please proceed.

Kartik Mehta - Northcoast Research

Good morning. Hikmet, I was wondering, you talked about normalized margins of about 30% and I’m wondering how long you anticipate that will take for this business to achieve that?

Hikmet Ersek

I think if you look at the business, about the customized business and Travelex business, we are very much focused on the growth. We anticipate that we are going to grow this business next three year's of our 10% combined business. Now it gives us about in 2012 400 million. Right.

Scott Scheirman

400 million in revenue.

Hikmet Ersek

400 million in revenue which is a big step right. We are also very focused on the expanding the growth. We have about 450 people on the market sales people which will give us also new countries, new additional markets, new clients. So, we are focused very much. I think on the margins, Scott, do you want to add on that?

Scott Scheirman

Yes, how I think about it, Kartik is 2012, 2013 we are going to spend about 70 million integrating the businesses really picking best in breed, getting to one operating platform and so forth. So, I expect in 2014 on a standalone basis that we would have margins right around that, 30% level for sure. One things that probably helpful to remind everybody is between the Custom House acquisition, the Travelex acquisition, we will have depreciation and amortization charges roughly about $70 million that related to the acquisition, but just on run rate amortization will have among those businesses. But what we do believe this is a business that can grow 10% longer term we can accelerate that growth rate and what I liked about the operating model, Kartik is about 50% of the cost are fixed, about 50% are variable. So, it's got a model where we can leverage that fixed cost structure once we spend the time integrating picking best of breed capabilities and leveraging the talent from both organizations.

Kartik Mehta - Northcoast Research

Then, Scott, what was the growth rate of this business over the last three years? Has it been as high as 10% or was it higher?

Scott Scheirman

If you look at for a number of the businesses globally, 2009 was a challenging year for a variety of reasons, but if you look at 2010 on a constant currency basis, a high single-digit top line growth for this business and combining the two businesses together we believe we can grow these right around 10% with opportunities to accelerate that once we get through the integration.

Kartik Mehta - Northcoast Research

Than just one last question, Scott. Does this have any impact on your share buyback strategy? You indicated that most of the cash used was international cash, so I'm wondering if there will be any impact at all on the share buyback strategy that you've utilized so far?

Scott Scheirman

You are spot on Kartik, but most of this is the international cash, which is if you are challenging to use for stock buy back. What I will say this [wasn’t] material event in the quarter, so we did have some restrictions on our ability to buy stock. We did have a 10B51 plan in place. So, we did buy stock in the second quarter, but broadly if you look at the end of March over $2 billion of cash on the balance sheet, in April we projected 1.2 to $1.3 billion of cash flow from operations. So, we really got the flexibility to invest in the business both CapEx acquisitions and then returning cash to our shareholders through buy back in it's dividend. So, we are in very good shape with our cash position and cash flows and continuing to push our priorities investing in the business and returning capital to shareholders.

Hikmet Ersek

That said on that we did buy back $525 million in last quarter and also we did increase our dividend to 14%. So, it's I think within our cash allocation we are right on our strategy.

Kartik Mehta - Northcoast Research

So it sounds like at least in the second half as this transaction is completed second half, you will go back to the strategy you followed about returning capital to shareholders?

Scott Scheirman

Yes, that will be (inaudible) strategy for sure, we will prioritize our cash, but our objective is invest in the business and return cash to shareholders based on a variety of factors, but yes.

Operator

Thank you. Your next question comes from the line of Andrew Jeffrey from SunTrust. Please proceed.

Andrew Jeffrey - SunTrust Robinson Humphrey

Good morning. Thanks for taking my question. Just as a follow-up on Kartik’s margin question, it looks like the EBITDA margin for this business in 2009 was higher than 30%, maybe closer to 35% and reading Travelex’s annual report, it seems like maybe there’s some one-timers in ‘10 that knocked it down toward 30%. So I'm just wondering if there’s something that has changed in the margin structure of this business or if you are investing in growth or why maybe the margin might've come down off of those 2009 levels in your normalized outlook?

Scott Scheirman

Yes, Andrew, think about a couple of things, there is some impact from currency, but as we look at the business we look at what did they normalized on going margin of this business and we see that normalized right around that 30% level and longer term as we get 3 year's out or so with the cost structure being 50% variable, 50% fixed opportunities to improve that EBITDA margin from that standpoint. But we think a business that throws off 30% margin is good growing around 10% and then balancing the integration and the synergies with making the right investments in the business to grow it.

Andrew Jeffrey - SunTrust Robinson Humphrey

Okay and then if I look at your $400 million combined revenue in ‘12, it looks like Custom House grew a little bit under 10% in the first quarter, which would've been a deceleration from the growth rate, which was a deceleration from the growth rate we saw in ‘10. Should we think about the Custom House business standalone Western Union business services growing at about that 10% rate too? I mean, that would be a little bit slower than what I would have thought this year?

Raj Agrawal

Andrew this is Raj Agarwal, I think as we manage the businesses going forward we will manage them on a combined basis. As Scott mentioned in the short-term we do see the combined businesses growing at 10% over the next three year's. As we expand through our partners and our agent partners around the world, we think there are opportunities to accelerate that growth longer term and I’m very confident about that.

Operator

Your next question comes from the line of Darrin Peller from Barclays Capital. Please proceed.

Darrin Peller - Barclays Capital

Thanks, guys. So you now have about like you said around $400 million or so or maybe 8, 9% of revenues that's going to be growing at 10%. First of all, that's not including I assume the revenue synergies you are alluding to by these opportunities. Can you give us a sense, a little more color and detail on what types of revenue synergies can be accomplished and what it can do to the growth rate from that 10% level?

Raj Agrawal

Darrin this Raj Agarwal, I think the combined business today has various partners and verticals and channels that they operate through. As we look forward and we combine this with the Western Union system, I’m very excited about the opportunity to grow through our agent partners. And I think that that in itself will be a key opportunity to accelerate the growth rate of 10% as we go beyond the integration period as we implement our strategies. SO, I think that’s where the revenue synergy opportunities come into play as we expand to more of the agent partners in the Western Union system.

Darrin Peller - Barclays Capital

And when do you expect that to be the case, in about a year out or further?

Raj Agrawal

No I think, as we have indicated over the next three year's, we see 10% growth but beyond that as we implement our strategies we see acceleration opportunities.

Hikmet Ersek

Maybe Raj, you can mention that we had two recently signed Philippines. Then we signed a Peruvian agents, we are also signed in UAE in the Arabs we are going to activate them. And we have the agents calling us I think our people on the field are constantly in contact with them. So, that’s part of our strategy.

Raj Agrawal

I think also financial institutions that Western Union has as agent say are key opportunities for us to grow this business as well.

Darrin Peller - Barclays Capital

All right, so I guess there's already some signs. From an economic sensitivity standpoint, how does this compare to your C2C business in the sense of how cyclical or economically sensitive you would consider this business?

Hikmet Ersek

Well, if you look at world where it's moving, it's global trade is growing, especially in the SME market given the new environment, people don’t need anymore and the big offices to export or import things. And the service for these SMEs and import and export payments has been always poor, small savings banks and part of Italy, conserved the other savings bank in Vietnam, conserved their (inaudible). So, we believe there is a huge opportunity there and also besides the traditional trade roads, there are also new trade roads there are also new trade roads developing like south to south and we believe with our 200 presence in 200 countries, our brand awareness, our agent awareness I believe that we can gain market share here and grow our business faster than the general market growth. As we did it in the consumer-to-consumer, it reminds me a little bit about the remittance market year's ago, where we started where the customers didn't get good service from the banks and where it was growing. And remember Darrin, we have sold in 2001 7% market share in remittance market and now we are at 17% plus and so it reminds me a little bit on that part.

Darrin Peller - Barclays Capital

All right, Hikmet, thanks. So this 10% growth over the next three years assumes relatively stable economy versus what we have today?

Hikmet Ersek

Yes, we assume that relatively stable economy.

Darrin Peller - Barclays Capital

Last question, just on the accretion on a cash basis, I'm sure we can crunch some numbers, but can you give us a little sense on, I didn't hear an actual number in terms of what the accretion on a cash basis is expected to be in ‘12.

Scott Scheirman

I mean Darrin, I will let you crunch the numbers but I tell you it's comfortably accretive from a cash basis in 2012, but I will crunch the numbers.

Raj Agrawal

Yes, I think just from an amortization standpoint, there is about 40 million of intangible amortization annually. So, you can take care our $0.04 dilution impact.

Operator

Your next question comes from the line of Julio Quinteros from Goldman Sachs. Please proceed.

Julio Quinteros - Goldman Sachs

Just a couple of quick questions. On the growth profile, I think I've heard you guys say 10% on a combined basis for it sounds like the $400 million. Can you just clarify that? Is that the Travelex business or is that the combined number that you are referring to?

Scott Scheirman

It's the combined business, we believe the combined businesses can grow right around 10% in the near-term the next couple of year's with opportunities to accelerate that growth rate, once we get the synergies and the core capabilities, it's best of breed combined and you utilize from that standpoint.

Julio Quinteros - Goldman Sachs

Okay so just maybe just for a little bit of a transparency then, what would be the implied growth, the organic growth of the business services business or the old Western Union business services? And then what do you think is the Travelex growth on top of that?

Raj Agrawal

Julio, this is Raj Agarwal, as we do integrate these businesses together, we do think their growth is going to be at 10% for the combined entity. As we said the market growth is going to be at the high single-digit range. I do believe that both of these businesses can tend to exceed that growth range overtime. But we will be looking at these are the combined units as we move forward. I think you have seen the business solutions business we have expanded to three of our agent partners recently and we continue to do that. We will also be expanding online. So, there are growth opportunities for both aspect of the business, but on a combined basis we see them growing 10% short-term.

Julio Quinteros - Goldman Sachs

I guess if we were to go back to the last Analyst Day, what was your expectation for the business services back then from your last Analyst Day and how has that changed if at all?

Mike Salop

Julio, this is Mike, for 2011 we gave mid-teens growth projection for business solutions. And we haven’t given specific number beyond 2011.

Julio Quinteros - Goldman Sachs

Okay and then on a combined basis, how we look at the old business services business, the EBIT margin or the operating profit margin for the business services was running around 16.5, 16% in my model. I think you have only talked about the EBITDA margin here. What does the EBIT profile look like for the Travelex business, please?

Scott Scheirman

You are asking about the EBIT profile.

Julio Quinteros - Goldman Sachs

The operating profit profile of Travelex.

Scott Scheirman

The operating profit profile of Travelex would be pre-acquisition little bit below the 30%, they have got probably about $10 million of depreciation and amortization before you get down to EBIT.

Julio Quinteros - Goldman Sachs

Okay, got it. And then any impact on the tax rate side?

Scott Scheirman

It's little bit too early to talk about 2012 and the tax rate, but as we have given the $0.04 dilution or the $0.04 accretion in 2013, we have taken that into consideration, but as we get beginning of 2012 we will talk more about 2012 specifics as far as outlook and tax rate and so forth. But it's still from a profit standpoint and revenue standpoint we will become more meaningful over the year's to come, but it is less than 10% of the top line right now.

Julio Quinteros - Goldman Sachs

Okay and just in terms of the sales profile of this business, is this actually sold through the agent locations? It is not clear to me if the SMEs actually walk into your agent locations or is there a different usage of that 450 sort of sales team that you guys talked about? Can you just help elaborate a little bit in terms of how the sales process actually works here?

Raj Agrawal

Julio, this is Raj Agarwal, we have many different approaches to the market from the very simple lead generation efforts, (inaudible) calling identifying leads to online acquisition of customers, we actually have an online business in the business solution side where we don’t utilize the direct sales force, so it's a direct acquisition of customers. Of course, we have the 450 person sales force that’s going on acquiring customers and then we also as you have heard distributed our product through partners. So, financial institutions to their customers and then other types of partners as well universities, law firms and then as we expand to our agent base, I’ll look at the agents in the Western Union side just being another distribution partner for us. So they are really leveraging their front end sales force to acquire more customer, it's really not about their retail locations, it's about their local market knowledge or local relationships and their ability to acquire customers. So, those are some of the different ways that we acquire customers.

Operator

Your next question comes from the line of Chris Lamoni from Deutsche Bank. Please proceed.

Chris Lamoni - Deutsche Bank

Thanks, just wanted to ask about in line with the expected revenue growth, I guess the 10% growth over the next three years and then as we think about acceleration beyond that, what type of headcount growth should we expect to go along with that?

Raj Agrawal

I think as we expand into new countries, there will be some additional infrastructure requirements, but I used to think about it as we grow through our agent partners, they will bear some of the costs with us and so it's a win-win situation for both of us.

Hikmet Ersek

Chris, maybe Raj you can add, how we did it already in Peru these network.

Raj Agrawal

Yes, as an example, we [patent that is] one of our money transfer agents that we signed in the Philippines we will pay them a commission for every single dollar of revenue that they bring in. But they are going to be spending money alongside of us to initiate the market and to get the market rolling. So, I think the partner model has different economics from it then the other size of model that we utilize. So, it's really going to be market depended on how we grow the infrastructure of Western Union to support this business growth.

Chris Lamoni - Deutsche Bank

Okay and I guess my follow-up question just maybe on the broader M&A strategy. If you look at the three legs to the stool that you put up in your presentation, I think that we have seen that M&A certainly has been a bigger part of the growth strategy on two of those three legs, consumer, money transfer, you had the three super-agent acquisitions since 2009. Now I think two big acquisitions on the business payments. How should we think about stored value as far as acquired versus organic growth on that leg of the stool?

Hikmet Ersek

(Inaudible) If you look at our total M&A strategy, obviously, we are really very focused on the cash allocation on the international cash we look at there is an opportunities to have on the international environment to use our international cash. As Scott mentioned before to bring it back, it has some restrictions on it. So, we really look at the sales M&A opportunities in international, but generally if you look at our M&A strategies that first of all the organic growth will continue happening on our consumer money transfer business, we are expanding our agent location expansion, we do marketing investing company to do marketing investment and also electronic channels. Our electronic channels is growing high double-digits as you know. I think last quarter it was growing Western Union have gone to 40% something like that. So, I think you already have 3% of our revenue coming from the electronic channels from the consumer money transfer. On the stored value it's still on the early stages Chris. If you look at that we are having about million cards in the U.S. and we are in the plan expanding our prepaid efforts internationally. Prepaid cards and stored value is more a local ones like there is not many global companies who play a niche role here doing cost for the prepaid transaction, but however, I believe we at Western Union have a huge role with our agent with our global bank to expand that organically globally to launch new prepaid product. On the business-to-business payment I think the Custom House acquisition in 2009 and Travelex acquisition now gives us really a leading position here.

Operator

Your next question comes from the line of Ashwin Shirvaikar from Citi. Please proceed.

Ashwin Shirvaikar - Citi

Thanks, so I just wanted to ask first, you talked about added capabilities because of the deal. Could you go into some more detail about what specific capabilities get added here?

Raj Agrawal

Sure, I think on the Travelex side they have additional products and functionalities that do not existed in a business solutions business, for example the ability to hold customer funds, or the ability to do transact and do hedging products online, than we also gained the capability of a local banking network in more than 70 countries. So, those are just some examples of the added products and capabilities. I think the addition of the sales force and one more sales force in many more countries. So, the geographic expansion going to 16 countries with this acquisition, it is also a big positive for us. So, those are some of the adds from the acquisition.

Ashwin Shirvaikar - Citi

Okay, for the follow-up, in terms of the reach for 10% or better growth in this segment seems to be a big reason why this deal happened. So how dependent is that 10% plus growth assumption on the economy or global trade growth versus the penetration of your own agent base and other factors? Do you sort of parse out what might be the contribution from various drivers?

Raj Agrawal

I think the key underpinning of the growth that we expect for the next year is based on global trade growth. So, I think that’s an important factor in all of this. However, as we do expand to the Western Union system and through additional agents and partners, I think that can be additional contributor to us longer term. SO, I think both are important factors but of course, we need to have global trade growth to drive this business.

Scott Scheirman

Our market share in this space is very small, so lot of this is about going on and gaining market share and expanding to additional countries and leveraging the capabilities, the complementary capabilities of both companies but it’s a market share gain too.

Hikmet Ersek

If you look at that we have a tradition to gain market share, the consumer-to-consumer money transfer business also in the as the global remittance market was not going as in the past. We gained all these market share I think we have a unique opportunity again in the business of payments to gain market share regardless about the growth, but still the good news is that addition to that the global trade growth of World Bank shows that global trade will continue to grow especially in SME market.

Ashwin Shirvaikar - Citi

Okay and last question, what was the primary competition for Travelex similar to what Western Union Business Solutions faced? Going after basically were you going against each other in some sense?

Hikmet Ersek

Generally if you look at the (inaudible) banks business, we are doing good banks serving their customers and the general one. I mean that has been but people still use the banks, but it's about as convenient it's about the good service and same as the consumer money transfer business banks then choose Western Union add on their product portfolio to sere their customers better as I mentioned before.

Mike Salop

There are seven additional markets that Travelex was in but Western Union Business Solutions was not in. So, compliment on geographic standpoint.

Operator

Your next question comes from the line of Tim Willi from Wells Fargo. Please proceed.

Tim Willi - Wells Fargo

Thanks and good morning. I just have two questions. First, the purchase price, I just want to make sure I'm understanding sort of the valuation metrics here correctly. We are talking about around British £600 million on what seems like normalized EBITDA of around $50 million. Is that correct?

Scott Scheirman

Yes, it's roughly 606 in sterling and then if you take the 150 million and assume a 30% margin the quick math is around £45.

Tim Willi - Wells Fargo

Okay, so that's around 12-ish, actually around 12 times EBITDA. Is there any debt or cash consideration we should think about in sort of netting that out against the purchase price?

Scott Scheirman

Not really, what I taking on any debt and we might have a small working capital in fusion, what I mean by small it could be roughly £10 million somewhere in that neighborhood, but it's primarily all cash deal with no debt and then we may have a little working capital we need to infuse but a small number Tim.

Tim Willi - Wells Fargo

Okay, and then the second question I had was just around some of the third-party distribution channels. I’m curious if geographically if there are certain regions that have been much more successful with those third-party channels versus others? Are there regions of the world that if you look at the Western Union franchise that may seem like real strong candidates for successes with third-party financial institutions or what have you? Sort of curious about that aspect of the strategy and its success rates.

Raj Agrawal

I think this is really an exciting part of the opportunity for us, because they look at the combined business as we have it. The financial institutions are heavily focused in the U.S. and in Australia. But as we look forward as Hikmet mentioned earlier on, 70% of our agents are post banks and banks and many of them are outside of the United States in North America. So, the opportunity is for us to take the partnership model and put it outside of the Americas and really diversify the sources of the partnership revenue. So, I think that’s a very exciting opportunity for us.

Tim Willi - Wells Fargo

Okay, so just so I understand, so you've actually got real strong success rates in the U.S. and Australia working with the FIs and now it's just time to export that model into places like Europe, etcetera, where Western Union is already very strong with the FIs, correct?

Raj Agrawal

Yes, FIs are not the only partner with work with. We work with many universities and law firms and other vertical partners. So, all of those are opportunity around the world I’d say.

Operator

Your next question comes from the line of Tien-Tsin Huang from JPMorgan. Please proceed.

Tien-Tsin Huang - JPMorgan

I just wanted to clarify, was this a competitive bid or an auction? And also, are there any earn-outs or any specific compensation tied to some of the synergies that you laid out?

Scott Scheirman

There are no earn outs in this deals, it's a straight up cash price, and then we worked closely with Travelex on the acquisition.

Tien-Tsin Huang - JPMorgan

Got it. And then on the synergy side, just curious about incentive compensation. Anything tied towards hitting some of the synergies and the growth targets, etcetera?

Scott Scheirman

Yes, clearly as we look at the management team that we have got certain financial and business milestones and they will have compensation tied to that.

Tien-Tsin Huang - JPMorgan

Scott, the $70 million in the COGS, should we assume that most of that is going to come next year, the bulk of it that is?

Scott Scheirman

Yes exactly, I’d expect a good majority of it will be in 2012 and a lesser amount in 2013.

Tien-Tsin Huang - JPMorgan

Okay, okay, just last one for me, from a strategic angle, just you've done a couple of large B2B deals. Is there more to come in terms of achieving what you want to achieve to penetrate this market? I ask because some people might argue that a bet on B2B is a bet away from C2C. So how would you respond to that, sort of that thinking?

Hikmet Ersek

If you look at our strategy generally we are really building a second leg and the third leg. And I mentioned that as you recall in my strategy overview in September, investors call last year, Investor Day last year. Our growth engine is continue to the consumer. Money transfer business and we are very focused on that and as we said in the last quarter, we affirmed our outlook for the year and electronic channels are growing and we are expanding also with our retail money transfer business. And here this is building really a second leg of Western Union, and these are really gaining the scale of your attention. So, we are very, very focused and Stewart and the team is very focused on the consumer money transfer business and I think that’s continue being a growth opportunity.

Tien-Tsin Huang - JPMorgan

Thanks for that, Hikmet. Just last one, I promise. It sounds that you guys have basically bought the top two providers. Other than the banks, any other providers that we should watch out for that could be a real competitive threat to Western Union on the B2B side?

Hikmet Ersek

I think if you look at generally the market we are always looking at opportunity and their opportunity will not. The banks are definitely very fragmented market it's a very fragmented market. There is a lot of competition here looking but it's huge fragmented market, but I believe also that we have here two companies combined with our western Union Business Solution, Travelex in terms that we have really a unique market opportunity, but if you look at the game channel of the market on the trade SME market it's very fragmented.

Mike Salop

We have time for one more question than we have a couple of closing remarks.

Operator

Okay, great. Your next question comes from the line of Glenn Fodor from Morgan Stanley. Please proceed.

Glenn Fodor - Morgan Stanley

I made last one, great. Thanks for taking my question. Any customer concentration nuances we need to be aware of or implication on contracts triggered by a change in control that might impact the business or just revenue profile?

Raj Agrawal

We don’t expect any major concentration it's in fact this takes us into 7 new countries. So the overlap is relatively small and as you look at the Travelex business complimentary assets in the same geographic. So their U.S. business is very strong than UK business is very strong and our Canadian business is stronger than their Canadian business. So, they are very complimentary strengths here. So, I don’t see any concentration issues.

Glenn Fodor - Morgan Stanley

Okay, then looking back at Custom House, it seems near-term it was a little more dilutive than initially anticipated because a little more investments required. What gives you confidence you're going to avoid any similar surprise here? What's different about this situation in your eyes?

Scott Scheirman

I think a couple of things, Glenn, is first that as we did the Custom House acquisition, we learned few things from there, but more importantly as we put together a very robust due diligence but acquisition integration plan. And both focused on how do we drive the top line taking best of breed capabilities functionalities for both businesses and then also looking at the integration side of things of where we can leverage platforms, IT operations and so forth. And we are very excited about the new management that’s coming on board. We think the combination of the Custom House management and the Travelex management we just have top notch management team, sales team. And so we feel like we are well positioned to gain market share over the next 3 to 4 to 5 year's.

Glenn Fodor - Morgan Stanley

Okay, so just a point on management. I know Tien-Tsin touched on it, but I know there's incentives for margins and growth, but what about management retention? Are you incentivizing management to stick around? Do you anticipate any sort of big changes there?

Scott Scheirman

Absolutely, we are very much like the management team and we have got retention plans in place along with performance bonuses and so forth.

Hikmet Ersek

The thing is great and we are professional and we like the management team very much, Glenn.

Mike Salop

I’d like to just give a couple of clarifying remarks from the questions about operating profit margins, let me turn it over to Hikmet for a final word. Operating margins for combined business we said we expect the EBITDA margins once we complete integration to be north of 30% and we think we have opportunity to expand those margins as we combine the companies and did our growth strategies in place as the synergies realized. From a reported standpoint the total depreciation and amortization for the combined companies, the expected EBITDA of $70 million annually for the next few year's is about 50 million of that is amortization related to the acquisition. And as we said about 40 of that comes from Travelex and about 10 of that so a little more than 10 or so relates to the Custom House. So, total D&A in the next few year's should be around $70 million so you can use that to calculate your GAAP operating profit margins. No I just want to turn it over to Hikmet just for a final comment.

Hikmet Ersek

Thank you, Mike, and thank you all for your questions. As I mentioned earlier I’m very excited about this acquisition which is one of our key strategic growth areas. We remain focused on growing consumer-to-consumer money transfer including the development of electronic channels and our leveraging our brand and consumer and agent relationship to build global cards value business overtime. Today’s announcement shapes the foundation of our third strategic growth priority business-to-business payment. The combination of Travelex Global Business Payments, Western Union Business Solutions, and Western Union brings together complimentary assets and position us well to drive additional growth for year's to come. The acquisition is also consistent with our stated cash priorities. We plan to continue utilizing our strong cash flow to invest in the business and supplement our growth strategies including strategic acquisitions when available and return funds to shareholders. We particularly look for investment opportunities to effectively utilize our international cash. This year we have executed on all our cash priorities. We have utilized international cash to purchase one of our leading European super agent with another one in process strengthening our consumer money transfer business. And today we have announced the planned acquisition of Travelex Global Business Payments which in combination with Western Union Business Solutions will provide us a strong foundation for growth in international business payments. Just to mention once again we also completed $525 million of share repurchase in the first quarter and raised our dividend by 14%. So, we have been active in all levels of cash deployment.

Thank you joining the call. I’d like to wish you all a good day and see you soon and talk to you on the 26th of July.

Mike Salop

Thanks everyone.

Operator

Ladies and gentlemen, thank you very much for your participation in today’s conference call. You may now disconnect. Have a wonderful day.

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