Moneygram International Inc (NASDAQ:MGI) was up 5.35% on Friday as rumors swirled around Wall Street that a buyout of around $20-$27 could happen. That could represent a sharp premium from its $21.45 closing price as of Friday, but is a buyout likely?
Moneygram International Inc (NASDAQ:MGI) posted free cash flow (FCF) of $43.4 million last quarter, which was significantly better than the negative $90.3 million in FCF posted in the quarter before that, and much better than the negative $8.9 million in FCF it posted in the same quarter a year ago. Moneygram International Inc (NASDAQ:MGI) has also refinanced it debt, which will reduce interest costs and boost FCF going forward. Not to mention that many analysts, including those at Compass Point, think that Moneygram International Inc (NASDAQ:MGI) will start to be consistently profitable starting next year with a projected $120-125 million in FCF for 2014.
Who would want it
With all buyout rumors there needs to be a buyer for the rumor to start. In Moneygram International Inc (NASDAQ:MGI)’s case, they have several (according to the rumors). Euronet Worldwide, Inc. (NASDAQ:EEFT) tried to buy Moneygram International Inc (NASDAQ:MGI) in 2008 for $1.65 billion, but Moneygram fended off the offer because management didn’t want to sell. Keep in mind that the offer back then is 33% higher than where the stock is trading at right now. This is fertile ground for rumors because if someone tried to buy a company before and failed, they “could” try again.
There is also The Western Union Company (NYSE:WU), which is the largest provider of money transfers (Moneygram is the second largest) and offers similar services to Moneygram. Potentially The Western Union Company (NYSE:WU) could purchase Moneygram (assuming it could pass regulatory approval) and strengthen its stronghold in the money transfer realm, which is growing very rapidly in emerging markets.
Growth in money transfer services
Back in 2003 the money transfer services business totaled $207.6 billion. 5 years later in 2008 the size of the market had reached $418.6 billion, before dipping down to $394.4 billion as the global recession cut wages and raised unemployment levels. As of 2011 (latest data available) the market is back up to $479.25 billion and looks like it hit over $500 billion in 2012.
In 2 years the money transfer market grew by 21.5%, and if the trend continues then in 2012 the market should be worth $535 billion and by 2015 could be worth over $700 billion. This is explosive growth, and worth taking a look at as most companies operating in this market trade at low valuations.