Examination of FLEETCOR's Purchase of AFEX Businesses
Fleetcor, a leading $20 billion payments company, has made a strategic move by acquiring AFEX, one of the few remaining independent B2B players of scale. This acquisition is set to integrate AFEX with Fleetcor's existing asset Cambridge, which was acquired in 2017 for $690 million.
The goal of these acquisitions is ambitious - Fleetcor aims to double its operating profit in just four years. John, Fleetcor's CEO, believes that fragmented industries consolidate over time, and these acquisitions are a step towards achieving that goal.
Fleetcor provides fuel cards and workforce payment products, and with the addition of AFEX, it forms a business of significant scale. While Cambridge plus AFEX ranks second only to WUBS in terms of revenue, it is growing much faster.
The geographic focus of AFEX is more skewed towards the European and AsiaPac markets, which could provide Fleetcor with a broader global reach. The AFEX transaction is likely to be around half the size of the Cambridge deal in terms of revenue.
Post-acquisition, some of the Cambridge playbook may be rolled out for AFEX. This includes improvements in the efficiency of distribution, specifically the selling model, which will involve more data-backed human sales interactions. Fleetcor aims to leverage its M&A integration experience to drive up margins.
In the B2B cross-border payments industry, which is highly fragmented, more so than the consumer side, Fleetcor plans to partner with fintechs such as Bill.com and KyckGlobal for targeting smaller corporates.
The next M&A target company for Fleetcor that could help double its operating profit in four years is FleetOps, with an estimated deal size of around $500 million. FleetOps, if acquired, could bring the necessary scale, accelerate growth, or introduce new product capabilities.
However, the road to profit doubling is not without challenges. In Q1 2020, Cambridge posted a $90m hedging loss, likely due to too much concentration in one exotic-weighted customer. New processes are in place to avoid a repeat of this.
Despite this setback, Fleetcor remains focused on its strategic acquisitions, targeting assets that can bring scale, accelerate growth, or introduce new product capabilities. The company is targeting the smaller end of the Fortune 1000, and with its latest acquisition of AFEX, it is one step closer to its goal.
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