Barclays is close to selling its payment business to investment firm Brookfield Asset Management for £650 million. However, the details of the transaction suggest that Barclays may have been eager to offload the business at almost any price.
It’s not uncommon for banks like Barclays to exit the merchant acquiring business when it operates as a standalone division, without strong integration into small business banking or enterprise treasury functions. What is unusual, however, is the structure of the sale. Brookfield will initially acquire a 10% stake in Barclaycard Payments, with a structured pathway to assume an additional 80% within three years. Barclays could retain a 10% minority stake.
In addition, Barclays is expected to invest £400 million into the unit to support its return to sustainable growth, according to Britain’s Sky News. It would also make a regulatory capital investment of approximately £250 million to secure approval for the deal.
A Declining Valuation
Barclays has been in a strong financial position lately, having announced a stock buyback of more than five million shares. But its payments business appears to be struggling against new competitors like Adyen and Stripe. Last October, reports suggested Barclays hoped to secure £2 billion for it, but the final sale price was at most a third of that.
“This sounds like Barclays is struggling to maintain a strong valuation on the business, with competitors blocking their path to continued sustainable growth,” said Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research. “Even though the bank wrote down the valuation by £300 million last December, Brookfield is acquiring the business for £650 million with Barclays immediately re-investing £400 million, making it unclear what the true value of the business really is, and how much investment it will take to turn it around.”
Not Quite a Done Deal
Apgar suspects that the deal, while still not finalized, may not be settled yet. He said that if the business continues to struggle, Brookfield may still have an out.
“If Brookfield is unsuccessful in turning the business around, they may walk away from completing the 80% stake in 2028, leaving Barclays to start the sale process from scratch,” Apgar said. “If the business has significant technical and product debt, it might make more sense for Barclays to sell the portfolio of accounts to a competitor and shut down the business, rather than prop it up for an investor to try and make a go of it.”
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