Disclaimer: Unless noted otherwise, views and analysis expressed here are the author's own and based on public sources. The article is intended for informational and entertainment purposes only. This is not financial advice. Please consult a professional for investment decisions.

*********************

This week’s guest is Dyfan Williams: a Payments M&A commando with a 25-year track record and a self-styled economic theory nerd. Dyfan’s latest mission: Operating Partner at XFolio, the first treasury management solution built with the needs of serial acquirers (and their investors) in mind. We should add that XFolio is a rollup itself, which makes it uniquely qualified to be the Platinum sponsor of our September Serial Acquirer Summit. 

The conversation with Dyfan is by far the most technical and philosophically dense piece we’ve published on RollUpEurope since starting the newsletter in 2023. Specifically, we touched on:

Before we tuck in, two questions:

1. Have you secured your ticket to our September conference? We’re 45% sold, with 6 weeks to go! The right place to meet your next co-founder or investor.   

2. Have you given a thought to our Rollup Bootcamp? Now on to the 3rd cohort. Stop dreaming about building your serial acquirer: get started in just 6 weeks! More information & application link. 

 AP: Dyfan, you’ve been at the coalface of payments M&A for a quarter of a century, having first founded (and later exited) a payments business and subsequently worked for giants like D+H, Finastra, Bottomline. Can you tell us how you got in the industry - and why you decided to stay? 

DW: Accidentally, which I suspect is true of almost everyone in payments. 

In the early 2000s, I was working for a small accounting practice and worked on an engagement raising money for what was then just an idea, an e-invoicing company. I ended up leaving the practice to work on the raise properly. We got the funding away, but e-invoicing was hard going at the time. And it's a lesson that gets repeated endlessly and learned rarely: a good idea with bad timing is indistinguishable from a bad idea.

So we pivoted. 

The UK's domestic payments infrastructure was moving to an IP-based system, and that opened a real gap, because a lot of the incumbents either couldn't or didn't want to rewrite their software. Suddenly we were winning business and the banks were asking who on earth these people were and why they'd never heard of us. It was also my introduction to doing deals with very little capital: persuading a set of small competitors to migrate their customers over to us on a revenue share, largely because they'd run out of appetite for their own businesses. An early encounter with succession as the real engine of consolidation, long before anybody was calling it a roll-up.

We got noticed by a number of larger acquirers and eventually sold to Fundtech, then NASDAQ listed, in transaction banking and payments. That process taught us a great deal about growth, about M&A, and about how many moving parts a business actually has once somebody else is looking at it properly. I stayed on for a number of years running lines of business and getting drawn into corporate development. I was doing the CFA at the same time, so I was already interested in financial analysis, and the natural extension was aligning that with strategy and M&A.

I became something of a nerd about academic literature: the classical territory of hubris, capital allocation, and the distance between how M&A actually performs and the enthusiasm with which it continues to be pursued. The questions that sound naive in a boardroom and almost never get answered properly: Why are we buying this? Are we actually the natural owner of it?

The other literature I keep coming back to is older, and more useful in payments than people realise. Coase asked why firms exist at all, and the answer is that at some point transacting in the market costs you more than doing it in-house.

Williamson turned that into transaction cost economics: asset specificity, contracting frictions, the cost of governing a relationship. Most of the consolidation I've been involved in has been, at heart, somebody working out that contracting with a network of small suppliers had become more expensive than simply owning them. That framing tends to hold up rather better than most synergy models.

One of the best deals we did was a small payments business with a good customer base and a significant but badly undervalued contract to provide white labelled payments software to a UK bank. It paid for itself many times over. We migrated the customer base, then went back to the bank and partnered on considerably better commercials. That shape of deal has come round several times since.

And over the same period Fundtech was sold to GTCR, then to D+H, then to Vista Partners to become Finastra. (RollUpEurope: today, Finastra is a $1.5B revenue business - source). 

So the research wasn't purely theoretical. If you're at all historically minded, you could see the various dimensions of private equity being tested in front of you: interest rates, economic shocks, playbooks that stopped working, technology cycles. That's largely why I stayed. Over time the patterns become more identifiable, and you're better placed to mitigate them or to take advantage of them.

AP: This brings us to the next topic: XFolio, your latest venture and a sponsor of the RollUpEurope September conference. What is XFolio? And what is your role at the company? 

DW: XFolio is a treasury management business. The platform connects enterprises to their banks and ERPs so they can see their cash positions, manage liquidity, forecast, make payments globally, and track both liquid and illiquid assets, alongside the more sophisticated end of it: hedging, intercompany netting, and the range of services that treasurers, family offices and holdcos need.

It's more relevant to this audience than people tend to assume. Diligence is largely an exercise in understanding cash: the flows, the working capital patterns, how the money actually moves rather than how the accounts describe it. And the moment a deal is done, what you want is to grab hold of cash visibility and control straight away, rather than running a reconciliation exercise three months later. More generally, a HoldCo can have clear visibility 24/7 without spreadsheets being sent left, right and centre, and family offices likewise, with a portfolio view across their holdings, both liquid and illiquid.

It was founded by Anis Rahal, who I first came across at Bottomline when we were looking at opportunities in the treasury space. Anis had founded TreasuryXpress, and Bottomline acquired the business to extend into the office of the CFO. We both moved on afterwards, stayed in touch, and I'm now working with him as an operating partner, growing the group both organically and inorganically. 

We've just acquired a domestic payments business in the UK, and we have a growing pipeline of other opportunities we're working on. Broadly we're looking across payments, treasury and the adjacencies around them, and we're less concerned with size than with a good customer base and something in the business that has been undervalued or underexploited. Which, in this market, is more common than you'd think.

AP: Let’s talk about Bottomline Technologies where you spent almost 5 years. Between 1999, when the company went public, and 2022, when it was taken private by Thoma Bravo in a $2.6B transaction, Bottomline grew revenues from less than $30M to more than $500M. I suppose that growth, plus running on 20% EBITDA margins, explains the take-private EBITDA multiple of 27x. What made Bottomline so attractive to PE? And what role did M&A play in its overall strategy?

DW: If you look at Bottomline's history, it made something like 40 acquisitions over its public life. Those deals took the company into SWIFT, into US payables, into the regulated payments space, and materially deepened the customer base in the UK. 

Most followed a fairly disciplined playbook: buy, migrate the customer base onto a handful of platforms across payments and working capital, and pick up geographies, competencies and adjacencies along the way. 

What tends to happen with companies like that, over time, is that the very things which make them good businesses make them irresistible take-private candidates. Entrenched positions, sticky customer bases, strong free cash flow. Management can rebuff the advances for as long as shareholders still believe there's more value in the public story. But more often than not the advances eventually become harder to push back on, and then the standard playbook comes into force: expand margins through cost optimisation, grow revenue, de-lever, exit at a higher multiple than you entered.

That last step is the one I'd watch. It's becoming harder. Once the costs have been taken out, the growth story has to carry the whole return on its own, and quite often it can't. We're seeing more and more instances of that.

AP: Having worked on dozens of deals in your career, I’m sure you have a few horror stories to tell. Are there common reasons why payments acquisitions fail? Here I’d like to quote your LinkedIn post from 2023 in which you said:

“What’s missing frequently is executives actually deciphering a lot of the DD results and asking whether these align with the plan moving forward. Not necessarily red flags but areas where the initial thesis might not be supported with the same conviction but often the deal carries on and at the same terms”.

How do you overcome such deal inertia?