Last week I wrote a post about Fleetcor’s acquisition of Nvoicepay.  The acquisition represented an opportunity to learn more about the economics of B2B payments.  The acquisition also prompted me to review Bottomline’s financial reports.  Bottomline owns Paymode-X, the largest B2B payment network in the US. Paymode-X boasts payments of more than $200 billion annually and over 400,000 payees. (Nvoicepay, by contrast, processed payments of approximately $20 billion annually.)

Paymode-X StatisticsPaymode-X and Nvoicepay Economics

To my delight, Bottomline now publishes revenue (though not profitability) on a product line level.  With a few assumptions, we can compare the economics of Paymode-X to Nvoicepay’s.  With a few more assumptions, we can also compare the valuation of the two companies.

According to Bottomline’s most recent 10-Q, the Paymode-X business generated approximately $100 million in revenue for the first nine months of the fiscal year. The business should finish the year with approximately $130 million in revenue.  Bottomline has also previously disclosed that Paymode-X processed more than $200 billion payments in 2017.  As a result, Paymode-X nets about 6.5 bps on the spend through its network.

Nvoicepay netted closer to 10 bps on its $20 billion in payments.  Nvoicepay’s higher take rate is not surprising.  Paymode-X used to price the business to the buyer, not the supplier, so it was late to the interchange game.  (Only a few years ago, did they change their business model.) Also, Paymode-X sells more through banks and perhaps to larger companies than Nvoicepay. (Larger buyers can demand more rebate).

Implications for the Valuation of Bottomline Technologies (EPAY)

Fleetcor’s 10-Q for this past quarter discloses:

“On April 1, 2019, the Company completed two acquisitions. The Company acquired NvoicePay, a provider of full AP automation for businesses. The Company also made a small international acquisition. The aggregate purchase price of these acquisitions is approximately $255 million.”

Let’s assume that $200 million of that $255 million was for NvoicePay.  That would be about 10x revenue, which is a nice multiple of revenue, but not uncommon for a fast-grower these days.  (According to Fleetcor, NvoicePay was growing at 80%+ CAGR over the last three years.)

Is Paymode-X worth 10x revenue, or $1.3 billion?  The company is growing a lot more slowly than NvoicePay, about 15% per year, albeit on a much larger base. On the other hand, Paymode-X probably earns a profit margin of about 20%, which means EBITDA is even higher.  Bottomline (pun intended), Paymode-X is close to a “rule of 40” business as a segment.  Valuing Paymode-X at 8-10x revenue is not a stretch given current valuations.

The total market cap of EPAY is $2 billion.  Let’s say half of that, $1 billion or 8x revenue, is accounted for by Paymode-X.  This means the rest of Bottomline’s businesses (e.g., legal billing, banking solutions, and other payment solutions) with revenue of nearly $300 million, 15-20% profitability, and growing at about 5-7% annually is worth about 3x revenue or about 10x EBITDA.

There are a whole lot of assumptions in there, but that math is why I have dabbled in EPAY’s stock when it gets low.  Caveat Emptor!

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