PAYMENT PROCESSING INDUSTRY Q2 2016

CONTACTS MERGER AND ACQUISITION ACTIVITY

Ted Polk Merger and acquisition activity in the Payment Processing industry remained robust in Managing Director 2015 with acquisition activity being driven by strategic buyers. Companies offering new (312) 674-4531 technologies remained attractive acquisition targets as they enable corporations to stay [email protected] relevant, increase profit margins and diversify their product and service offering. As a result, the industry is growing and consolidating, with new businesses entering the market Lisa Tolliver focused on providing niche services. In particular, online payment processing providers have consolidated, as the rate of new entrants has significantly decreased over the past Director couple years, although it still remains positive. This indicates that the industry is maturing (312) 674-4532 and that consolidation is starting to curb the number of overall participants in the [email protected] industry. Overall, the availability of cash and debt has continued to facilitate transactions – debt multiples, in particular, have reached 4.0x, the highest level since 2005. Public Daniel Schultz payment processing companies are currently maintaining a median revenue multiple Director of Business Development around 3.1x with end-market growth heavily influencing these multiples . (617) 619-3368 [email protected] Number of Online Payment Processing Companies in the US

2,500 2,314 35% 2,197 2,265 2,048 1,948 30% 2,000 1,894 1,521 25% 1,500 20% 1,153 1,000 884 15% 10%

500 Percentage Change Number Number Companies of 5%

BOSTON 0 0% CHICAGO 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E LONDON Source: IBIS World; Capstone Partners LLC Research LOS ANGELES PAYMENT PROCESSING INDUSTRY TRENDS NEW YORK ORANGE COUNTY The following trends are expected to influence M&A activity within the Payment Processing industry. PHILADELPHIA SAN DIEGO  Increased use of mobile and online payment – Consumer demand continues to shift away from brick-and-mortar stores towards online retail. Expansion of e- SILICON VALLEY commerce in the US and globally has driven revenue in the online payment TAMPA processing market, which has grown 10.6% annually from 2011 to 2016. Mobile payment processing will drive sector growth over the next five years as vlafjklj240 Payment Processing Industry Q2 2016

 smartphone adoption rates increase and more consumers use mobile devices to make payments. Strong margin opportunities are attracting a floodgate of new entrants into this industry while a few larger players continue to dominate market share. As the industry matures, buyers will look to acquire online and mobile payment processing companies to gain market share, improve their technology capabilities and diversify their offering. In addition, economies of scale and developing strong relationships with online retailers remain key factors for success in the industry, making acquisitions attractive for buyers and sellers. Notable online and mobile transactions include eBay’s acquisition of Zong for $240 million (July 2011), PayPal’s acquisition of for $800 million (September 2013) and Google’s acquisitions of TxVia and Softcard (February 2015). Softcard was subsequently shutdown allowing Google Wallet to be pre-installed on Android phones for Verizon, T-Mobile and AT&T.

 Increased disposable income and consumer spending – Per capita GDP is expected to rise from $46,480 in Q1 2016 to $50,024 by 2020, thus providing consumers with additional disposable income and greater spending power. Total payment processing revenue grew 4.4% to $55.5 billion in 2015 with an estimated 3.0% coming directly from an increase in volume and frequency. Payment processing operators will seek acquisitions to gain market share and be better positioned for future growth.

 EMV adoption driving security innovations – Europay, MasterCard and Visa (EMV) adoption is rapidly growing as a result of changes in liability of fraudulent transactions to card networks that have not upgraded their point-of-sale (POS) systems. Modern, chip-enabled cards are expected to improve security and better protect consumers from fraudulent transactions. Overall, this change will impact about 1.2 billion credit and debit cards, as well as 12 million POS terminals. By the end of 2015, it was estimated that over 50% of cards were converted to EMV technology with the larger issuers accounting for most cards. This security shift in the Payment Processing industry will not only benefit POS transactions in the long-term, but will better protect all stakeholders from fraud. However, the shift is also expected to have unintended consequences and will significantly increase online fraud. Ten years ago when the United Kingdom implemented EMV technology nationwide, card fraud dropped 53% from 2005 to 2013. However, while the added security deterred counterfeiters from infiltrating physical cards, it pushed their focus towards e-commerce fraud, which increased 79% from 2005 to 2008. In 2016, e-commerce fraud is projected to have a much wider impact on the economy because of the volume of online transactions that are processed. The US Census Bureau estimates that at the end of 2015, e-commerce sales made up approximately 7.5% of total retail sales, compared with 3.5% in 2008. As a result, companies that offer online security in the Payment Processing sector will see strong growth and will be acquisition targets in 2016.

Capstone Partners LLC 2 Payment Processing Industry Q2 2016

SEGMENT HIGHLIGHT: PREPAID CREDIT AND DEBIT CARDS

The prepaid credit and debit card segment of the Payment Processing industry has experienced steady growth over the past few years due to new electronic payment methods, rising banking fees and difficulty for lower income consumers to qualify for credit cards. The high degree of security and spending limits that prepaid cards offer have made them increasingly more popular in incentive programs for companies to reward their employees. Prepaid cards also serve consumers who don’t have bank accounts because funds can be loaded through direct deposit, money can be withdrawn from ATMs and purchases can be made at retail establishments. The main growth in this segment is being driven by consumers with bank accounts who use prepaid cards as a budgeting tool in order to protect against overdraft fees and also those who purchase them as gifts.

Acquisitions within this segment are being driven by large, strategic companies looking to diversify their product offering and private equity firms attracted to the growth dynamics of this market sector. Over the past two years, FleetCor, Blackhawk and Total System Services have made numerous strategic acquisitions in this segment. Notably, Blackhawk, a leading provider of prepaid gift, telecom and debit cards, has targeted acquisitions that expand their presence in employee incentive and reward programs (CardLab and Parago in 2014, Achievers Corp in 2015 and extrameasures in 2016) as well as increase their online and mobile presence (Omi Prepaid in 2016). In addition, private equity firms look for organic growth in the prepaid market as well as opportunities to combine capabilities with previous acquisitions (Spell Capital’s current holding – American Card Service acquired Production Services Associates in 2014).

SEGMENT HIGHLIGHT: CORPORATE INCENTIVES

Incentive and reward programs are an important part in helping corporations retain and motivate employees. According to a survey by WorldatWork, 91% of their respondents indicated that their companies had informal recognition programs while 81% used formal programs including employee of the month, safety performance and quarterly reviews. Experiential rewards, such as incentive travel, have seen major growth within this segment due to the emergence of the “Experience Economy.” Limited luxury incentives, such as gift cards, are one of the most popular incentives amongst companies and employees. Operators in this segment that offer personalized and mobile solutions will be attractive acquisition targets in 2016. Both financial and strategic acquirers have been active in this segment recently. According to Blackhawk, “There’s a significant change taking place in how corporations motivate and reward their loyal employees and customers as traditional incentives are giving way to more enticing prepaid products.” This observation has spurred the aforementioned acquisitions by Blackhawk (Parago, CardLab, Achievers, etc.) in an attempt to control the fulfillment of incentives using prepaid cards. Companies that can help a potential strategic acquirer diversify their product offering and capabilities will be attractive targets. In addition, as corporations place increased emphasis on employee retention and loyalty, private equity buyers will likely also increase their holdings in these fragmented markets.

Capstone Partners LLC 3 Payment Processing Industry Q2 2016

NOTABLE PAYMENT PROCESSING TRANSACTIONS

Several notable transactions have already been completed or announced in the Payment Processing industry through Q2 2016. Selected transactions are outlined below, followed by a more comprehensive list on the following table.

 Blackhawk continues acquisition spree, acquired Omni Prepaid, NimbleCommerce and extrameasures (January, February and March 2016) – Effective January 6, Blackhawk acquired Omni Prepaid from Wolfe LLC for approximately $120 million in cash and debt under an existing credit facility. The acquisition includes both GiftCards.com, a seller of digital and prepaid gift cards, as well as OmniCard LLC, a provider of customized prepaid incentive and reward solutions for corporate clients. With the market shifting to a more digital landscape, this acquisition highlights Blackhawk Network’s strategy to build out its digital product line. GiftCards.com has a prominent web presence with strong SEO results and a highly-trafficked website. Less than a month after the acquisition of Omni Prepaid, Blackhawk Network then acquired NimbleCommerce, a digital e-commerce platform for brands to manage their prepaid offerings and gift card programs, for an undisclosed amount. The acquisition of NimbleCommerce will expand Blackhawk Network’s distribution capabilities for gift cards and e-gifts by adding distribution points in media outlets, deal websites and other publishers. Most recently, Blackhawk acquired extrameasures, a prepaid consumer promotions and incentives company. Extrameasures will expand Blackhawk’s already extensive incentive and engagement business. Within the past year, Blackhawk has also acquired DIDIX Gifting (October 2015), a developer of gifting and promotion products, for $40 million and Achievers Corporation (June 2015), a cloud-based employee recognition and rewards company, for $110 million.

 Global Payments acquired Heartland to create a leading provider of integrated payments technology (December 2015) – Global Payments, a provider of payment technology services, recently acquired Heartland Payment (Heartland) for an enterprise value of approximately $3.4 billion and an EBITDA multiple of 21.8x. The acquisition will enable Global Payments to expand its distribution channels amongst medium to small merchants, grow in new geographic regions and provide multiple cross-selling opportunities. Jeffrey Sloan, CEO of Global Payments, commented, “This partnership with Heartland marks a major milestone for our company, significantly enhancing our direct presence in our largest market and transforming Global Payments into the leading provider of integrated payments technology solutions in the world.”

 Technekes acquired a large minority stake in Xceleration (July 2015) – Xceleration, a leading provider of incentive and recognition solutions, has recently been acquired by their long-term partner, Technekes, a B2B marketing company based in Charlotte, NC. The deal gives both companies majority interest in Gravy, an iOS and web application that enables corporations and consumers to give gifts to employees, partners or friends. The deal highlights the emergence of mobile technology within the Payment Processing industry as well as within the employee incentive segment.

Capstone Partners LLC 4 Payment Processing Industry Q2 2016 SELECT PAYMENT PROCESSING M&A TRANSACTIONS

Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA

Blackhawk 03/31/16 extrameasures Provides prepaid consumer promotions and incentives. - - - Network

Develops Visa, MasterCard and Discover network 03/08/16 1to1 Card SVM - - - prepaid card programs for companies worldwide.

Provides cloud-based solutions that combine payment 02/08/16 Billhighway BluePay - - - processing and banking for non-profit organizations.

Nimble Blackhawk Offers an e-commerce platform and solutions for 02/03/16 - - - Commerce Network companies to manage prepaid and gift card programs.

Provides payment transaction processing services and 01/26/16 TransFirst Total System $3,413.3 2.3x 27.6x payment enabling technologies.

ACI's Community Comprises online and mobile banking and payment 01/20/16 Fiserv $200.0 - - Business systems.

Provides a secure payment solution for international 01/20/16 ScholarFX Flywire - - - students coming to Canada.

01/18/16 Minicheckout omNovos Develops mobile payment solutions. - - -

Provides electronic payment integration software 01/15/16 AJB Software - - - solutions for merchants.

Consolidated Greenridge Provides an based electronic asset 01/11/16 - - - Asset Recovery Investment management (IBEAM) service.

Blackhawk Sells customized prepaid incentive and reward 01/06/16 Omni Prepaid $120.0 - - Network solutions.

Heartland's EchoSat Offers SmartLink’s secure payment gateway and 01/04/16 - - - Smartlink Communications managed network services.

Provides point-of-service collection management 12/22/15 ImageVision Invoice Cloud - - - software for hospitals.

New Mountain Provides healthcare reimbursement analysis and 12/18/15 Equian $225.0 - - Capital payment integrity solutions.

Heartland Global 12/15/15 Provides payment processing services in the US. $4,405.7 1.7x 21.8x Payment Payments

Higher One's Offers students access to their financial aid and other 12/15/15 BankMobile $37.0 - - Student Business refunds, or easily make payments to the campus.

Circle Plus Develops payment applications for iOS and Android 12/09/15 Tarsin Mobile - - - Payments devices.

Charity Operates MobileSmartBid, a platform that provides 12/02/15 BigSighted - - - Auctions Today payment processing and mobile bidding for charities.

Zoom-Cash's Necessity Comprises an electronic cash legal funding payment 11/11/15 - - - Legal Payment Funding Partners system.

Electronic Offers Exatouch, a cloud-hybrid POS software solution 11/04/15 Exatouch - - - Payments and Paylytics, a reporting managing solution.

Heartland Provides Windows and DOS based point-of-sale 10/30/15 Menusoft $18.7 - - Payment solutions for hospitality environments.

Capstone Partners LLC 5 Payment Processing Industry Q2 2016 SELECT PAYMENT PROCESSING M&A TRANSACTIONS (CONTINUED)

Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA

Early Warning Operates a network that lets customers send person- 10/26/15 clearXchange - - - Services to-person payments in the US.

DIDIX Blackhawk 10/22/15 Develops gifting and promotion products. $40.2 - - Gifting Network

Electronic Provides payment solutions for corporate purchasing, 10/19/15 WEX $1,469.5 - - Funds Source travel, expense reporting and cash access.

Provides a Software-as-a-Service based financial 10/15/15 Benaissance Evolution1 $80.0 6.0x - management system for health benefits administration.

Tab Velocity 10/15/15 Provides Tab, a payments app for dining. - - - Payments Mobile

Offers gift cards that are sold in the US and are 10/06/15 Quippi Emida - - - accepted at retailers in Mexico.

Sightline's NRT 09/24/15 Offers ATM and cash advance software solutions. - - - Assets Technology

Velocity Offers Cover, a dining application that handles 09/22/15 Cover - - - Mobile splitting, tipping and paying at restaurants.

Provides payment, risk management and 09/16/15 Beanstream Bambora - - - authentication solutions.

Terrapin Provides merchant processing services in the Mid- 09/10/15 BluePay - - - Financial Atlantic Region.

Aurora 09/09/15 Finicity Provides payment processing solutions. - - - Financial

Offers Wipit, a payment application that enables users 09/03/15 Wipit Urban FT - - - to make cash payments from their smartphones.

Wellington and 08/12/15 Operates a cross-border payments platform. - - - Susquehanna Equity

Smart Card Offers VelocityMPOS, a customizable EMV mobile 08/12/15 CT-Payment - - - Marketing point of sale solution for retail.

Innovative Provides credit and debit card payment processing 08/10/15 i3 Verticals - - - Financial services.

Provides a student billing and payments processing 08/10/15 Smart Tuition Blackbaud $190.0 - - platform.

Provides on-demand subscription billing and payment 08/05/15 Monexa NetSuite $35.0 - - automation solutions for large ISPs.

American Credit Priority Provides credit card processing and merchant accounts 07/23/15 - - - Card Processing Payment for merchant businesses in the US.

Offers B2B Internet-based incentives and recognition 07/01/15 Xceleration Technekes - - - solutions to corporations.

Premier Provides debit and credit card payment processing 06/25/15 Newtek $16.3 - - Payments services to merchants and businesses.

Blackhawk Provides cloud-based employee recognition and 06/11/15 Achievers $110.0 2.5x - Network rewards solutions.

Capstone Partners LLC 6 Payment Processing Industry Q2 2016

PUBLIC COMPANY TRADING & OPERATING DATA

Price % 52 Wk Market Enterprise LTM EV/LTM Company 04/11/16 High Cap Value Revenue EBITDA Margin Revenue EBITDA ACI Worldwide, Inc. $19.72 76.4% $2,348.1 $3,220.4 $1,046.0 $174.8 16.7% 3.1x 18.4x

Aimia Inc. $6.16 53.2% $938.5 $1,276.6 $1,908.0 $139.1 7.3% 0.7x 9.2x

Blackhawk Network Holdings $33.55 69.3% $1,872.1 $1,327.7 $1,801.1 $161.2 8.9% 0.7x 8.2x

Deluxe Corp. $60.17 86.3% $2,944.4 $3,516.4 $1,772.8 $402.3 22.7% 2.0x 8.7x

First Data Corporation $12.40 68.9% $11,182.2 $33,415.2 $7,764.0 $2,374.0 30.6% 4.3x 14.1x

FleetCor Technologies, Inc. $145.68 87.9% $13,492.4 $15,982.3 $1,702.9 $846.1 49.7% NM 18.9x

Global Payments Inc. $72.20 96.7% $9,332.5 $10,699.5 $2,857.6 $629.8 22.0% 3.7x 17.0x

PayPal Holdings, Inc. $38.41 90.3% $46,963.0 $43,552.0 $9,248.0 $1,951.0 21.1% 4.7x 22.3x

Total System Services, Inc. $48.51 85.6% $8,885.6 $9,962.8 $2,779.5 $666.6 24.0% 3.6x 14.9x EV = enterprise value; LTM = last twelve months $ in millions, except per share data Mean 22.6% 2.9x 14.6x NM = Not Meaningful; NA = Not Available Median 22.0% 3.3x 14.9x

Harmonic Mean 16.7% 1.7x 12.8x Last Twelve Month Margin Performance

85% 74.2% 75% 64.0% 63.0% 58.4% 65% 54.8% 55% 49.7% 49.8% 45% 34.9% 33.3% 35% 26.2% 30.6% 22.7% 22.0% 24.0% 25% 21.1% 16.7% 15% 7.3% 8.9% 5% -5% ACI Aimia Blackhawk Deluxe First Data FleetCor Global PayPal Total System Payments Services LTM Gross Margin LTM EBITDA Margin

Last Twelve Month 1-Year Revenue Growth

45% 42.0% 40% 35% 30% 24.6% 25% 20% 15.2% 13.6% 15% 10% 5.9% 2.9% 2.9% 4.2% 5% 0% -5% -0.3% ACI Aimia Blackhawk Deluxe First Data FleetCor Global PayPal Total System Payments Services

Source: Capital IQ as of April 11, 2016

Capstone Partners LLC 7 Payment Processing Industry Q2 2016

THE PAYMENT PROCESSING TEAM

Ted Polk, Managing Director [email protected] • (312) 674-4531 Ted is Managing Director and Head of the Central Region at Capstone, based out of Chicago. He has over 20 years of experience, having completed strategic sale and recapitalization transactions across a variety of industries. Prior to Capstone, Ted ran the corporate finance practice in the Central region for Morgan Stanley Smith Barney’s Capital Strategies Group and its predecessor, Citi Capital Strategies. Ted is a frequent public speaker on the topic of business exits and recapitalizations of privately owned businesses. In 2008, Ted was recognized by The M&A Advisor for the Cross-Border Middle-Market Deal of the Year. In 2009, another of his transactions was recognized as the Middle-Market M&A Financing Deal of the Year and in 2011 he was recognized for lead-managing the Middle-Market Deal of the Year. Previously, Mr. Polk worked at Valuemetrics, Inc. and in the Corporate Banking Group at The Bank of New York. Ted received his BSBA degree from Georgetown University and MBA from the University of Chicago. He is a Chartered Financial Analyst (CFA), a Series 7 and 63 Registered Securities Representative, and a Series 24 Registered Securities Principal.

Lisa Tolliver, Director [email protected] • (312) 674-4532 Lisa has over 15 years of experience in the investment banking industry, primarily focused on advising private business owners in liquidity related transactions. Presently, she is a Director in Capstone’s Chicago office supporting the management of the Central Region. Prior to Capstone, Lisa worked in the Capital Strategies Group at Morgan Stanley Smith Barney and its predecessor Citi Capital Strategies, where she was involved in the evaluation, marketing and closing of numerous transactions across a wide range of industries. Specifically, she has developed expertise within various industries including business services, consumer products, software & technology, industrials and government services. Lisa received her BA on academic scholarship from Illinois State University and is a Series 7 and 63 Registered Securities Representative.

Daniel Schultz, Director of Business Development [email protected] • (617) 619-3368 Dan oversees Capstone’s national business development and industry coverage activities, working closely with current and prospective clients of the firm on matters related to corporate sales, recapitalizations, mergers & acquisitions and growth financings. In his role, Dan is able to deliver specific market intelligence to clients regarding M&A, financing, strategic, industry and competitive trends. Prior to spearheading the firm’s business development and market initiatives, he was a Vice President in Capstone’s M&A group, managing numerous successful transactions across a variety of industries. Dan also gained hands-on transaction experience as an investment banker at Headwaters MB. He started his career with Ernst & Young’s National Professional AABS practice in New York and later worked in Assurance and Advisory Business Services in the Denver office. Dan received a BE in Biomedical Engineering with a Business Minor from Vanderbilt University. He earned an MBA and a Master of Accountancy from the Daniels College of Business at the University of Denver.

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ABOUT CAPSTONE PARTNERS

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