REPAY [NASDAQ:RPAY], a provider of vertically integrated payments software, is in active acquisition talks and expects to use M&A to drive scale, said Alex Cohen, executive VP of corporate development and strategy.

Following the general slowdown across the payments M&A landscape, many more assets are now coming to market, Cohen said, describing current activity as “robust”. REPAY’s conversations with bankers are increasing though no acquisition deal is imminent, and it remains to be seen how many processes come to fruition, he added.

The Atlanta-based company could transact before year-end, though Cohen said 1Q25 is more likely, especially given the presidential election this fall. The election doesn’t affect how REPAY views M&A and, in fact, boosts acquisition horsepower given the seasonal uptick in revenue from the company’s political media business, he said.

REPAY has a healthy balance sheet, having recently completed a convertible note offering and upsizing its revolving credit facility to USD 250m.

It could pay for a target in the USD 300m-USD 400m range without issuing new equity, Cohen said. The sweet spot to execute an acquisition with cash on hand and perhaps draw some on the revolver is in the USD 50m-USD 150m range, he added.

The company has a net leverage of approximately 2.7x, CFO Tim Murphy said during its 2Q24 earnings call. It would want to keep leverage below 4.5x with an acquisition and look to bring it back below 3x within 12-18 months, he said on the call.

While the company has previously executed product buys – such as for backend processing and settlement capabilities from its 2019 purchase of TriSource and for its accounts payable payments division from a buy in 2020 – it expects acquisitions now to focus on increasing scale, either within existing verticals or to help penetrate new verticals, Cohen said.

Core verticals on the consumer payments side include consumer finance, accounts receivables management, mortgage and credit unions. It likes verticals with similar characteristics, such as anything with bill payments, education, government and insurance, Cohen said. REPAY has some presence in healthcare and would like to get into that sector in a more meaningful way, he said, noting acquisitions could help it do so.

It looks for vertically integrated targets in spaces that are relatively early in the conversation to digital payments, Cohen said.

REPAY primarily operates in the US, with some business in Canada, and it could consider acquisition targets in both countries, according to Cohen. While North America remains the focus on the consumer side, the company could look at acquisitions to launch into international markets like Europe and South America with its business payments product, he added.

The company prefers assets that are already profitable and, at least for larger deals, shies away from targets that would dilute its EBITDA margins on a combined basis, Cohen said.

REPAY posted adjusted EBITDA of USD 126.8m in 2023, according to its earnings report. The USD 33.7m adjusted EBITDA generated in 2Q24 was up 10% year over year. Total revenue generated in 2023 was USD 296.6m, up 6% from the previous year.

In business payments, REPAY is mostly displacing legacy solutions like check, automated clearing house (ACH), or in-house check processing, according to Cohen. When vying for business against other companies, those competitors include Paymerang, Fortis Payment Systems, Paya and AvidXchange [NASDAQ:AVDX], he added.

Paya was bought by Nuvei [NASDAQ:NVEI,TSX:NVEI] in 2023 for USD 1.3bn. Corpay [NYSE:CPAY] in May announced the acquisition of electronic payments provider Paymerang for an undisclosed sum. The deal was reportedly worth USD 475m and represented a high single-digit forward-revenue multiple, as reported.

Competitors on the consumer payments side vary by vertical, Cohen said, noting that REPAY sees Paymentus [NYSE:PAY] and ACI Worldwide [NASDAQ:ACIW] as competitors in consumer payments and mortgage, Cohen said.

The executive declined to comment on reports from earlier this year that REPAY hired an advisor to pursue a sale. “One of my jobs is to talk to investment banks and stay out there in the market,” he said.