Western Union to buy Canadian B2B business outfit Custom House

Source: Western Union

The Western Union Company (NYSE:WU), a leader in global payments, today announced a definitive agreement to acquire Canada-based Custom House, Ltd., a leading, independent provider of business-to-business international payment solutions for small and medium enterprises (SME).

The US $370 million cash transaction is expected to close in the third quarter 2009, subject to regulatory approvals and customary closing conditions.

The international SME payments market is a large, growing and highly fragmented category. Today, Custom House is on plan to generate US $100 million in annualized revenue, primarily from senders in seven countries including Canada, the United States, the United Kingdom, Italy, Australia, Singapore and New Zealand. The company has built a sizable client base, significant international payment capabilities, a strong network of banking partners and scalable operations that are poised to capitalize on this opportunity. Custom House's multi-channel payment solutions include their online platform, which provides reliable web-based payment capabilities to over 120 countries worldwide. These strengths will be enhanced by Western Union's globally recognized brand, international footprint and financial strength.

Christina Gold, president and chief executive officer of Western Union, stated, "Custom House is a dynamic business and has a significant customer base in the cross-border payments market, which generates strong margins and cash flow. Western Union intends to grow this business by attracting new customers and entering new geographies."

Strategic Rationale

The acquisition of Custom House supports Western Union's strategic plan by:

  • Entering a new growth market and diversifying its product portfolio
  • Furthering Western Union's presence in the SME payment market
  • Expanding its customer base
  • Building a global line of business
  • Establishing strong account-to-account transfer capabilities that complement Western Union's existing cash-to-cash and account-to-cash expertise

Peter Gustavson, Custom House chairman and founder, stated, "We are extraordinarily proud of what the Custom House team has accomplished as an independent company and are excited about the increased potential that will come from leveraging our collective resources."

Currently owned by Peter Gustavson and the Boston-based private equity firm Great Hill Partners, Custom House will become part of the Western Union Global Payments segment (formerly the consumer-to-business segment) on completion of the transaction, and continue to operate under its existing management team in Canada. For each of the past nine years, Custom House has been voted one of Canada's 50 Best Managed Companies.

Ranjana Clark, executive vice president of Global Payments and Global Strategy, stated, "Custom House is a highly complementary business with a proven operating model, seasoned management and differentiating technology. Custom House President and CEO Peter Ciceri and his team are known for providing clients with speed, accuracy and world-class customer service. We look forward to working closely with Custom House as we continue to grow this dynamic business."

Custom House has been growing revenue at a 20% CAGR over the past three years. The Victoria-based company has a diverse international client base of nearly 40,000 customers with an average principal per transaction of approximately US$25,000. With a strong team of 630 employees worldwide, Custom House's multi-channel delivery and recurring transaction-based business model has significant operating leverage.

The transaction will be funded by Western Union's international cash on hand. For 2009, the acquisition is expected to be approximately $0.01 dilutive to Western Union's earnings per share with the largest portion of the dilution attributable to the new accounting standard that requires expensing of transaction related costs. Additionally, this acquisition is expected to benefit 2009 revenue by less than 1%. The company's outlook as reaffirmed on April 21, 2009 did not include the impact of this acquisition.

JP Morgan Securities, Inc., acted as financial advisor to Western Union. Financial Technology Partners, LP acted as financial advisor to Custom House.

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