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Ant Financial acquires MoneyGram for US$ 880 million

Thursday 2 February 2017

Ant Financial, the financial technology company controlled by billionaire Jack Ma, announced the acquisition of US money-transfer service MoneyGram International for US$ 880 million (EUR 822 million). This is the company’s second US deal. Last year, Alibaba’s subsidiary, which also operates Alipay, acquired EyeVerify, company that makes mobile eye-recognition software (cf. Smart Insights Weekly #16-39).


Dallas-based MoneyGram is a service that handles cross-border currency transfers — remittance payments — in close to 200 countries, where it claims to have 350,000 physical locations. MoneyGram has a network of 2.4 billion bank and mobile accounts. Over the past few years, however, brick-and-mortar incumbents have been facing growing competition from more tech-savvy companies that are able to offer cheaper services online. The company recorded US$ 1.4 billion (EUR 1.2 billion) in revenue in 2015, but just 13% of which was from digital transactions highlighting its massive offline presence.


The company will continue to be based in Dallas and operate under its existing brand.


The deal comes at an opportune time for MoneyGram, since a substantial portion of its business could come under pressure from President Donald Trump’s stance on immigration and trade. Many immigrants use MoneyGram to transfer money from the US to their families. Mexico represents about 10% of MoneyGram transactions, according to Bloomberg Intelligence. Trump had proposed a plan last year to cut off the remittances that Mexican immigrants living and working in the US send back home.


On contrary, President Trump has been questioning whether the US should continue its "One China" policy, sparking fury from Chinese state media. And during his presidential campaign, Trump threatened to impose punitive tariffs on Chinese imports. Nevertheless, Jack Ma, the founder and chairman of Alibaba, held a meeting with Trump and the latter said he had a "great meeting."


Still, the deal will need regulatory approval. The Committee on Foreign Investment (CFIUS), a Treasury Department agency that reviews foreign purchases of US companies, will probably scrutinize the deal. While CFIUS is unlikely to deem the MoneyGram takeover a national security threat, legal experts say, the deal could face more inspection than usual given Trump’s anti-China rhetoric. Meanwhile, there is a push in Washington to boost CFIUS’s power.


This acquisition is in line with Ant Financial’s ongoing globalization push. The company is seeking to expand abroad amid increasing competition from Tencent’s Wechat payment system at home. The MoneyGram deal will further that goal, following recent partnerships with Paytm in India (cf. SIW #15-28) and Ascend Money in Thailand (cf. #16-38). Alipay has also been partnering with European banks to drive its European expansion (cf. SIW #16-50), and added support for Verifone and First Data payment terminals (cf. SIW #16-46 and #16-44).


For the most part, these geographic plays have been aimed at travelers from China to the US and other countries. But having MoneyGram under its umbrella would give Ant and its affiliates a foothold to serve non-Chinese consumers. Beyond being the main US rival to Western Union, MoneyGram also has a transfer partnership with Walmart.


Ant Financial serves more than 450 million customers and provides services from wealth management and insurance to credit checks and consumer loans in China. It is tipped to go public in the next year or two, potentially in China, eschewing the path taken by Alibaba which held a record US IPO worth US$ 25 billion (EUR 23.2 billion) in 2014 (cf. SIW #14-40). Last year, Ant Financial raised a colossal US$ 4.5 billion (EUR 4.2 billion) funding round at a valuation of US$ 60 billion (EUR 56.1 billion) (cf. SIW #16-17). The company was valued at US$ 75 billion (EUR 70.1 billion) by Hong Kong investment group CLSA in September.


In related news, Alibaba has released its quarterly earnings for the third quarter of its 2017 fiscal year, which ended on December 31,2016. Revenues for the quarter were reported at roughly US$ 7.76 billion (EUR 7.25 billion), a 54% year-on-year increase, with the core eCommerce business accounting for around 87%, though there were also strong gains in the cloud computing unit and digital entertainment.


The cloud computing business saw a 115% year-on-year boost to US$ 254 million (EUR 237.3 million) taking the total number of customers to 765,000, while digital entertainment grew 273% to US$ 585 million (EUR 546.6 million). Alibaba may still be considerably reliant on the core business unit, though the cloud and digital entertainment units are contributing more than chump change.