Barclays Bank is currently negotiating with Brookfield Asset Management to transfer 80% of its merchant acquiring division. The valuation of this Barclays division remains a point of contention, with estimates ranging between less than $1 billion and $2.5 billion. These talks are still in progress, and a final agreement is not yet on the horizon.
Reports indicate that setting a price has been problematic, as potential investors are cautious about the initial costs. In December 2023, Barclays decreased the valuation of this business by £300 million. Additionally, Global Payments’ recent purchase of Barclays’ affiliate Takepayments might affect future revenues.
Key Takeaways
- Barclays’ Strategic Move: Barclays is negotiating to sell an 80% stake in its merchant acquiring division to Brookfield Asset Management while retaining a 20% interest. This potential sale is a key part of Barclays’ strategy to streamline operations and refocus on core banking activities, marking a significant shift in its business structure.
- Valuation Challenges: The division’s valuation has proven inconsistent, ranging between $1 billion and $2.5 billion. In December 2023, Barclays reduced the unit’s value by £300 million ($392 million), complicating investor confidence.
- Industry Competition and Context: The merchant acquiring sector faces intense competition from fintech firms like Adyen and Stripe. This competitive landscape, coupled with the potential modernization Brookfield’s involvement could bring, aligns with broader industry trends in which traditional banks adapt or divest to stay competitive.
- Brookfield’s Role: With extensive asset management experience and recent payments industry ventures, Brookfield will invest in upgrading Barclays’ payment systems. Immediate cash payments are unlikely, as Brookfield focuses on long-term development and operational improvements.
Barclays Nears Deal to Sell Majority Stake in Payment Division to Brookfield
Barclays Bank is nearing a deal to sell 80% of its merchant acquiring division to Brookfield Asset Management while keeping a 20% interest. The value of this part of Barclays’ business is estimated to be between less than $1 billion and $2.5 billion.
This division of Barclays processes payment transactions for companies, allowing them to receive customer card payments. It has encountered stiff competition from fintech firms such as Adyen, Stripe, and Dojo, which have introduced new payment technologies. As a result, Barclays has been assessing ways to improve this unit’s performance and market value. The negotiations are happening at a time when Barclays is performing well, led by CEO CS Venkatakrishnan. Last December, the bank indicated that it was considering its strategic options for the operation of this payment and had reduced its valuation by £300 million ($392 million).
It is important to note that Barclays is unlikely to receive a cash payment upfront; Brookfield would take on expenses related to expanding and updating the business.
Valuation issues have been problematic for Barclays, as potential investors are reluctant to invest heavily in a recently devalued business. In December, Barclays lowered the business’s valuation by £300 million. Furthermore, Global Payments’ acquisition of Barclays’ partner, Takepayments, has added complexity to the deal, potentially impacting revenue streams.
Brookfield will not provide immediate financial compensation for the acquisition. Instead, it must invest significantly in improving its products and updating outdated payment systems.
This deal reflects Barclays’ continuous strategy of refining its business model and concentrating on its core business or businesses with more growth potential. In 2024, Barclays sold its German consumer finance business and Italian mortgage portfolio, indicating a strategic shift towards core banking activities. The partnership with Brookfield is expected to provide the merchant-acquiring unit with the necessary resources and expertise to compete.
Brookfield Asset Management, a Canadian firm managing over $825 billion in assets, has experience in the payments industry, notably through its acquisition of Network International in 2023. Brookfield’s involvement is anticipated to bring strategic insights and investment to modernize Barclays’ merchant acquiring unit.
The European payments sector has encountered challenges, with companies such as Nexi, Adyen, and Worldline facing revenue issues. Barclays’ decision to restructure its payments business highlights a broader trend in the industry, where traditional financial institutions are either partnering with or divesting from specialized firms. This shift aims to adapt to technological advancements and increasing competitive pressures.
About Barclays Bank
Barclays Bank US is a subsidiary of the British universal bank Barclays and provides various financial services in the United States. These include credit cards tailored for individuals and small businesses, installment loans, online savings accounts, and CDs. Furthermore, Barclays Bank US extends to corporate banking, investment banking, and wealth management. As part of its parent company’s global operations, Barclays Bank US aligns with the broader objective of focusing on the financial needs of its customers, clients, and communities worldwide.
About Brookfield Asset Management
Brookfield Asset Management (BAM) is a leading global alternative asset manager with investments in various asset classes, such as real estate, infrastructure, renewable energy, private equity, and credit. BAM provides a broad spectrum of investment products and services tailored to public and private clients, including private funds, listed issuers, and public securities. Additionally, it delivers structured transaction services and offers platforms that assist businesses and governments in reducing their carbon emissions.
BAM serves a diverse client base, including public and private pension plans, endowments, foundations, sovereign wealth funds, financial institutions, insurance companies, and private wealth investors. The company operates globally, with corporate offices in the Americas, Asia Pacific, and EMEA. Its headquarters are in Toronto, Ontario, Canada, and it has locations in the US, UK, Canada, China, India, Australia, UAE, Brazil, and Colombia.
Conclusion
The potential sale of an 80% stake in Barclays’ merchant acquiring unit to Brookfield Asset Management reflects Barclays’ strategic shift toward core banking operations and growth areas. Despite valuation challenges and competitive pressures, the partnership with Brookfield could bring essential resources and expertise to modernize the division, potentially enhancing its future performance.
This move highlights broader industry trends where traditional banks collaborate with specialized firms to adapt to evolving market demands. If finalized, the deal could strengthen Barclays’ focus on its primary business, which holds significant growth potential, while positioning the payment division for future competitiveness.
