Unveiling the Workings of Cambridge Global Payments

In the world of global payments, two major players have been making waves - Fleetcor and Cambridge Global Payments. While Fleetcor, a US-based company specializing in fuel cards and corporate payment products, has been expanding its horizons, Cambridge Global Payments has been focusing on organic growth and strategic partnerships.

Fleetcor was once the odds-on favourite to acquire Cambridge Global Payments, but the company chose to add more value organically instead. This decision has proven to be a strategic move, as Cambridge Global Payments continues to grow and increase in value.

Cambridge Global Payments, a larger but less profitable competitor, boasts a 2019 EBITDA margin of 22%. The company's focus on partnerships with companies with many customers has been a key factor in its growth. In fact, Cambridge's emerging markets payment business targets Tier 1 banks and payment aggregators, but not startups or smaller fintechs.

One of the significant achievements of Cambridge Global Payments is its offering of FX payments and currency risk management services. The company has been steadily introducing more automated and tech-powered products, positioning itself as a leader in the industry.

However, the journey has not been without its challenges. In Q1 2020, Cambridge suffered a $90m bad debt loss due to a client in the agricultural sector entering voluntary liquidation as a result of Covid-19 financial pressure. This bad debt loss is considered a one-off occurrence, as Cambridge's bad debt has never exceeded 1.5% of revenue.

Despite this setback, Cambridge remains focused on its future strategy. Organic growth will continue to be a priority, with some M&A backed by Fleetcor's experience expected at some point. The company offers spot, forwards, and options products to mid-size and up companies, making it a formidable competitor in the market.

Meanwhile, Fleetcor has been making strategic acquisitions to expand its global payments capabilities. In 2017, the company purchased Cambridge Global Payments for $675 million. Since then, Fleetcor has acquired companies like eNett and Custom House, which have helped enhance Cambridge Global Payments' market reach and service offerings.

Fleetcor's acquisition of Cambridge Global Payments in 2022 has been a game-changer. The company has increased Cambridge's EBITDA margin from approximately 40% to 60% within three years. This growth and increase in value are attributed to factors beyond Fleetcor's ability to drive margin improvement, according to Mark Frey, President of Fleetcor.

The unified offering of Fleetcor and Cambridge Global Payments is expected to pose a significant challenge to standalone fintechs in the market. The two companies are working towards unifying their API model, integrating their products with Fleetcor's other payment products for large corporates.

Cambridge's invoice automation product, initially focused on the legal sector, is being repositioned as a general offering. This move is expected to further strengthen the company's position in the market.

As both Fleetcor and Cambridge Global Payments continue to grow and evolve, the global payments industry can expect some exciting developments in the coming years. The strategic decisions made by these companies will undoubtedly shape the future of the industry.

In a previous acquisition in 2018, WUBS was reported to have been up for sale for approximately $500 million, but there were no takers. Applying the same EBITDA multiple as the acquisition (13.5x) to Cambridge's current EBITDA margin suggests it is worth over $1.5 billion. However, it remains to be seen if WUBS will re-enter the market in the future.