Western Union is understood to be eyeing up rival MoneyGram as a potential acquisition candidate, Bloomberg reports. The deal would see two of America’s largest money transfer and remittance services join forces.
Colorado-based Western Union has reportedly made a takeover offer for MoneyGram, but no decision has been made, and the acquirer could opt to proceed without a deal. Neither party has commented on the deal.
At the end of the first quarter of 2020, MoneyGram’s total revenues were down roughly 7-8%
Dallas-based MoneyGram has suffered due to the global coronavirus lockdowns. Over the years, the firm has allocated a large portion of its technology efforts to digital kiosks, rather than website or mobile app development.
In the first quarter of this year, just 18% of MoneyGram’s money was transacted digitally. The firm still relies heavily on physical channels – many of which are currently shut due to various countries’ continued lockdown measures.
Traditional remittance firms face an increasingly competitive landscape. With business models built heavily around fees, both Western Union and MoneyGram have had to pivot to compete with fintechs like TransferWise which offer digital-only money transfer services at a discounted rate.
Policy makers and governments around the globe have also long been keen to cut the fees firms can charge for sending money, putting further pressure on these long-standing business models to change and adapt. According to the World Bank, it costs on average $6.79 for every $100 sent overseas.
At the end of the first quarter of 2020, MoneyGram’s total revenues were down roughly 7-8%. But hours after reports on the takeover bid emerged on Monday, MoneyGram shares rose as high as 74% in late trading.
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Western Union is not the first to eye up MoneyGram
On closing, MoneyGram’s market value finished on about $176.5 million, with about $878 million still in debt. Western Union’s stocks rose 3.5%, finishing on a much larger market value of $8.5 billion.
Despite the public perception that MoneyGram is Western Union’s slightly smaller sibling, the two firms are on opposite ends of the valuation spectrum, with TransferWise, Remitly, and WorldRemit all topping MoneyGram’s valuation.
In a surprise decision last year, the money transfer service decided to sell 10% of its equity to blockchain solution provider Ripple in a $50 million deal. MoneyGram’s transfer flows make XRP – the Ripple coin – more valuable, hence the investment.
But after experiencing some market volatility due to its affiliations with Ripple, MoneyGram’s valuation eventually settled to back down to pre-Ripple levels.
Western Union is not the first to eye up MoneyGram. Chinese Big Tech Ant Financial agreed to acquire the remittance firm back in 2017, but the deal was abandoned when US national security regulators pushed back on the deal.
In 2007, Euronet had offered to buy the remittance firm, but MoneyGram kept stalling on the deal until its stock started to free fall and Euronet terminated its offer. It threw its hat into the ring again in 2017, and even hired lobbyists to prevent a Chinese business like Ant Financial from buying it instead.
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