Plaid Inc., Visa Inc. - M&A Call - NYSE:V

NYSE:V

Mike Milotich made several announcements during the M&A call regarding Visa's proposed acquisition of Plaid. Below is a detailed summary of his statements:

1. Opening Remarks:

   • "Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's conference call to discuss the proposed acquisition of Plaid."

2. Introductions:

   • "Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer; Vasant Prabhu, Visa's Vice Chairman and Chief Financial Officer; and Zach Perret, Plaid's Chief Executive Officer and Co-Founder."
   • "Also, for the question-and-answer section, we have Ryan McInerney, Visa's President; and Jack Forestell, Visa's Executive Vice President and Chief Product Officer."

3. Webcast and Replay Information:

   • "This call is being webcast on the Investor Relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days."

4. Slide Deck Availability:

   • "A slide deck containing an overview of the proposed acquisition of Plaid has been posted on our Investor Relations website, which provides more details you will find helpful."

5. Forward-Looking Statements Disclaimer:

   • "Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors."
   • "Additional information concerning those factors is available in our most recent 10-K, which you can find on the SEC's website and the Investor Relations section of our website."

6. Transition to Al Kelly:

   • "And with that, let me turn the call over to Al."

7. Call for Questions:

   • "Jordan, we're now ready to take questions. Jordan?"

8. Closing the Q&A Session:

   • "One last question, Jordan."

9. Closing Remarks:

   • "We'd like to thank you for joining us today. If you have additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great evening."

During the M&A call on January 13, 2020, regarding the proposed acquisition of Plaid Inc. by Visa Inc., Alfred Kelly, presumably the CEO of Visa, made several statements outlining the rationale and strategic vision behind the acquisition. Here is a detailed summary of his remarks:

Initial Remarks

• Excitement About the Acquisition: Kelly expressed enthusiasm about the acquisition, emphasizing how it would enhance Visa’s growth trajectory.
• Opportunities Presented by Plaid: He highlighted that Plaid opens up new market opportunities by expanding Visa's network capabilities, providing a platform for extending integrated payment solutions and value-added services, and positioning Visa to capitalize on the fintech-driven evolution in financial services.

Explanation of Plaid’s Offering

• Consumer Services: Plaid's products allow consumers to conveniently share their financial information with thousands of apps and services (e.g., Acorns, Betterment, Chime, Transferwise, Venmo) that assist them in planning spending, increasing savings, and monitoring investments.
• Fintech Evolution: Kelly discussed the increasing development, unbundling, and repackaging of financial services by fintechs, with these offerings being used more frequently. In 2019, 75% of internet users utilized at least one fintech application.
• Connectivity Importance: The connectivity between banks and fintech developers has become critically important, and Plaid plays a vital role in this area.

Strategic Opportunities with Plaid

• Partnerships with Fintechs: Partner more extensively with a broad range of fast-growing fintechs through the delivery of developer services.
• Payment Capabilities and Value-Added Services: Deliver various payment capabilities and value-added services as part of Visa’s network of networks strategy.
• International Expansion: Enhance Visa’s offering and provide high-demand services to clients in international open banking markets.
• Data Management Solutions: Provide consumer data management solutions that empower consumers to manage their data and its usage.

Plaid’s Key Differentiators

• Scale: Plaid has established significant scale, with 1 in 4 people with a U.S. bank account using Plaid. It is also well-positioned outside the U.S., operating in Canada and the U.K. and in beta in Ireland, France, and Spain.
• Connectivity: Sophisticated best-in-class financial institution connectivity, currently connected with over 11,000 financial institutions.
• Developer Franchise: World-class developer franchise supporting over 2,600 fintechs, with easy-to-integrate technology, quality, reliable product performance, and proven results leading to loyal and engaged customers.
• Open Banking Connectivity Products: Industry-leading open banking connectivity products, including Plaid's Link SDK, providing a seamless user experience with authentication and user consent.
• Talent: Expert team with strong leadership and a developer-centric culture.

Benefits of the Acquisition

• Network of Networks Strategy: The acquisition will be a key enabler of Visa’s network of networks strategy and will deliver value in several ways:
  • Expanding a new high-growth financial data network business in the U.S. with a meaningful value proposition for fintech developers and bank partners.
  • Broadening the financial data network business to international markets.
  • Delivering payment initiation and value-added services to fintech developers globally for non-card and/or RTP payments, accelerating Visa Direct and open banking efforts.
  • Serving as a source of new growth in Visa’s core business by working more closely with fintechs on payments, money movement, and value-added services.

Cultural Alignment and Leadership

• Cultural Alignment: The Plaid team shares similar values with Visa and has a strong cultural alignment.
• Leadership Structure: Plaid will continue to be led by its co-founder and CEO, Zach Perret, who will report to Visa’s Chief Product Officer, Jack Forestell.

Financial and Strategic Implications

• Movement of Funds: Visa aims to focus more on the movement of funds globally, and the acquisition of Plaid aligns with this goal.
• Revenue Acceleration: Kelly sees the acquisition as a revenue accelerant over time, but it is also a long-term strategic decision that offers significant growth potential for at least the next decade.
• Strategic Integration: Kelly discussed the importance of being pragmatic in integrating Plaid’s operations, prioritizing continued growth in the U.S. and strategically expanding internationally.
• International Growth: Plaid’s international presence is nascent, but Visa plans to leverage its relationships and expertise to help Plaid expand globally.

These statements reflect Visa's strategic vision for leveraging Plaid's strengths to enhance its own capabilities and offerings in the rapidly evolving fintech landscape.

During the M&A call between Plaid Inc. and Visa Inc. on January 13, 2020, Zach Perret, an executive from Plaid Inc., made several statements regarding the acquisition and the future direction of the company. Here’s a detailed summary of his comments:

Initial Remarks

• Mission Statement: Zach expressed excitement about the announcement and reiterated Plaid’s mission to simplify financial management for everyone by enabling consumers to connect their financial data with various applications and services.
• Product Focus: He highlighted Plaid’s commitment to creating simple, secure, and powerful products that facilitate the development of digital financial services, contributing to the digital transformation of the financial ecosystem.
• User Adoption: One in four Americans with a bank account has connected it to Plaid through one of the 2,600 fintech applications that rely on Plaid’s platform.
• Rationale for Visa Partnership: Zach explained that Visa shares Plaid’s vision and business model, focusing on fintech connectivity and developer-centric solutions. The partnership will leverage Visa’s global reach, network-building expertise, and brand recognition to accelerate Plaid’s mission.

Expansion and Open Banking

• European Market: Zach discussed the positive experience Plaid has had in the UK and the expansion into other European countries in beta. He emphasized the importance of open banking regulations, which empower consumers to control and access their financial data.
• Learning from Europe: He mentioned that lessons learned from the European open banking framework have been applied back into the US market, and Plaid aims to work closely with financial institutions to develop products tailored to customer needs.
• Global Expansion: Zach expressed optimism about the potential for open banking concepts to spread globally, with Plaid committed to operating in these markets.

Acquisition Benefits

• International Presence: Zach noted that the acquisition and partnership with Visa will enable Plaid to expand its product offerings into new international markets where it currently lacks a presence but sees significant demand.
• Developer Focus: He mentioned Plaid’s developer-driven customer acquisition model and the potential to leverage Visa’s developer-focused products to further distribute Plaid’s offerings within large organizations.
• Product Integration: There is potential for combining elements of Plaid’s and Visa’s products to create innovative solutions.

Revenue Model

• Usage-Based Model: Zach explained that Plaid’s revenue model is usage-based, designed to grow alongside its customers’ growth. As developers connect more accounts and utilize more data, Plaid charges more, aligning its revenue with the value it provides.

In summary, Zach Perret's remarks during the call emphasized the alignment between Plaid and Visa’s visions, the benefits of the acquisition, and the strategic direction for expanding into international markets and leveraging each other’s strengths to enhance product offerings and drive innovation in the fintech sector.

Vasant Prabhu, an executive at Visa Inc., made several statements during the M&A call announcing Visa’s proposed acquisition of Plaid Inc. Here is a detailed summary of his remarks:

Initial Announcement

• Acquisition Benefits:

  • The acquisition offers two significant long-term sources of value:
    1. A substantial expansion of Visa's total addressable market.
    2. Acceleration of Visa's long-term revenue growth trajectory.

• Plaid's Role:

  • Plaid is a global leader connecting fintech developers to financial institutions, enabling a wide range of innovative financial services.
  • Through the acquisition, Visa will provide a broad set of products and services to the global fintech community, becoming a key enabler of financial services innovation.
  • Visa will tap into new revenue streams representing a substantial expansion of its total addressable market.

• Fintech Growth:

  • Fintech companies are growing at many multiples of Visa's core C2B payments business.
  • Plaid, as a leading provider to fintechs, expands Visa's access to these extraordinary growth opportunities.

• Global Expansion:

  • Visa's global relationships and infrastructure can accelerate Plaid's global expansion.
  • Integrating payments with Plaid accelerates Visa's network of networks' money movement strategy (Visa Direct, Earthport, and B2B initiatives).

Financial Terms

• Total Cash Consideration: Visa will pay $4.9 billion to acquire 100% of Plaid.
• Retention Equity: Approximately $400 million in retention equity and deferred equity consideration (composed of Visa restricted stock units) will be delivered to current Plaid employees.
• Funding: The $4.9 billion cash consideration will be funded from cash on hand and new debt issuance.
• Impact on Capital Allocation Strategy: No impact on Visa's capital allocation strategy, including stock buyback programs and dividend policies.
• Closing Timeline: Expected to close within 3 to 6 months, subject to regulatory approvals and customary closing conditions.

Near-Term Revenue and Earnings Impact

• Immediate Revenue Accretion:

  • If the transaction closes by April 1, Plaid will add 30 to 40 basis points to Visa's net revenue growth.
  • Given Plaid's growth rate, it could add 80 to 100 basis points to Visa's revenue growth in fiscal 2021.

• Revenue Growth Trajectory:

  • As Visa expands internationally, integrates payments, and Plaid's revenue base grows, Plaid will continue to drive acceleration in Visa's revenue growth trajectory.

• Investment Plans:

  • Visa intends to invest heavily in the early years to sustain Plaid's momentum, enhance its platform, expand internationally, and integrate payments.

• One-Time Integration Costs:

  • Visa will incur one-time integration costs in the first year.
  • The retention equity and deferred equity consideration will be expensed over the first 3 years, with approximately 75% of the expense incurred in the first 2 years.
  • There will be additional expenses from the amortization of acquired intangibles and higher interest expenses from the new debt issuance.

Adjustments to GAAP EPS

• Non-GAAP EPS Exclusions:

  • Amortization expense from acquired intangible assets.
  • Expensing of retention equity and deferred equity consideration.
  • Non-recurring transaction and integration costs.

• Dilution Impact:

  • If the transaction closes by April 1, it will dilute non-GAAP EPS by approximately 0.5 point.
  • In fiscal 2021, Visa anticipates non-GAAP EPS dilution of 1% to 1.5%.
  • The transaction is expected to be accretive to non-GAAP EPS by the end of year 3 (fiscal 2023).

Additional Insights

• Revenue Growth Trajectory:

  • Plaid's revenue growth trajectory is excellent, and Visa aims to sustain and accelerate this growth.
  • Three vectors of growth:
    1. Broader set of products and services that Plaid can offer in its strongest market (U.S.).
    2. Accelerated international expansion.
    3. Immediate opportunities to integrate payments and accelerate initiatives like Earthport and Visa Direct.

• Long-Term Perspective:

  • This acquisition positions Visa for the next decade, not just for short-term high growth rates.
  • It represents a substantial expansion in Visa's addressable market, providing new products and services to a rapidly growing community.
  • Visa can accelerate Plaid's international expansion and its own network of networks money movement strategy.

Financial Data

• Accounts Linked to Plaid:

  • Accounts linked to Plaid have grown from 10 million in 2015 to over 200 million in 2019, compounding at a rate of 115%.
  • The revenue trajectory has matched or exceeded this growth rate.

• Total Addressable Market (TAM):

  • Banking and investing: Estimated TAM of $650 million, with only 5% penetration currently and growing rapidly.

  • Lending: Potential revenue of $1 billion or more with only 2% penetration.

  • Multiple segments with substantial international opportunities, indicating a massive expansion in Visa's total addressable market.