By Emily Dattilo

Payment solutions company Paysafe is a solid acquisition candidate, KCR analysts argued in a January report.

The company -- which serves consumers and merchants in the entertainment industry -- began trading on March 31, 2021, through a special purpose acquisition company at $15.49 a share and fell 74% that year, according to Dow Jones Market Data.

"This painful experience caused investors to ignore the company's subsequent impressive revenue and cash flow increases over the last seven quarters and positioning itself as an attractive takeover candidate," the analysts wrote.

In each of the full years 2021 to 2023, the company generated annual free cash flow of about $220 million, or $3.60 per share.

The analysts added that the stock still looks undervalued, despite nearly doubling since its low in May 2023. After a reverse stock split in 2022, the stock now trade hands around $17 per share.

"Considering the compelling fundamental backdrop of high growth, technological sophistication, and lower costs than legacy card services, PSFE looks to be an attractive acquisition candidate as it disrupts the oligopoly of Visa, Mastercard, and American Express," analysts wrote.

The company was bought for $4.7 billion by two private-equity firms in 2017 when its earnings before interest, tax, depreciation, and amortization, or Ebitda, hovered around $300 million, compared with the current level of about $500 million, analysts noted. That implies a takeout enterprise value to adjusted Ebitda multiple of more than 15 times.

If the company was acquired at 15 times Ebitda, the stock could more than quadruple and at 10 times Ebitda, it could more than double, KCR wrote, adding that somewhere within that range is reasonable.

"Considering the rapid growth in digital wallets and the benefits to merchants who cite credit card swipe fees as their number one pain point, we think it is worth noting that Visa and Mastercard trade at 15x sales vs. PSFE trading at 0.7x," they wrote.

Write to Emily Dattilo at emily.dattilo@dowjones.com

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January 10, 2025 13:16 ET (18:16 GMT)

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