Good morning. T his is the Chorus Call conference operator. Welcome, and thank you for joining Nexi's Conference Call, Creating the European PayTech Leader. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo Bertoluzzo, CEO of Nexi. Please go ahead, sir.
Good morning. Morning to everyone, and thank you for attending this call, so early, in the morning. As usual, I'm here with Bernardo Mingrone, our CFO, and Stefania Mantegazza, who's leading investor relations, so we are here to comment, and go deeper in details, our announcement that we made last night. W hen we communicated, that we signed a binding agreement for the combination of, Nexi and Nets.
Following, the announcement we made a few weeks back, on the signing of a Memorandum of Understanding for merger with, SIA. Today, we have a long document in front of us, a rich document, a detailed document. We did try to do the best we could to provide you with as much detail and insight, always in the rationale of what we are doing, give you more detail about Nets, what Nets is today, the key pillars of the new Nexi, the financials and all of that, and we will also have a good Q&A session as usual.
I will not cover, and Bernardo will not cover all the details of the document that you have in front of us, and we'd be very happy to go back to them in the Q&A session. But I really want to make sure that we leave with you three key messages, that are the ones on page three of the presentation.
These three messages are: the first one, a firm belief. A second one, a fact. And the third one, a strong commitment. The firm belief is that combining Nexi with SIA and Nets. We are creating a stronger Nexi. We are creating a stronger Nexi with more growth potential, thanks to the market exposure to a much larger underpenetrated market, thanks to the scale we are creating, thanks to the product portfolio and the capability portfolio that the new group will have.
We are creating a stronger Nexi because it's also more resilient, thanks to the geographical diversification, to the stronger exposure and capabilities in e-commerce, to the lower customer concentration that the new group will have. And the stronger Nexi we're creating is a combination of two all-share deals that consist in the EBITDA multiples and market valuations without adding or raising additional debts for our company.
The second key message is a fact. Nets is a growth PayTech. It's a very different company from what you may remember from 2017 and 2018. It's a company that has undertaken a strong and deep transformation process since 2018 , and is now executing a strong growth plan where the early signals are already very visible, and the company now presents a growth profile that is quite similar to the one of Nexi a nd obviously, we'll spend a good amount of time on this topic.
The third is a commitment. We will execute effectively our standalone plans, the combinations, the integrations, the synergy delivery, with a clear focus and phase integration plan. We have a strong and experienced team in place in Nexi, in Nets, in SIA, that will be able at the same time to lead and execute this transformation, but also, at the same time, grow the ongoing business.
Moving to page four, what are we creating today? We are creating the European PayTech leader. We are strongly convinced that the Nexi, Nets, SIA is a powerful European strategic combination. It brings three benefits. The first one is that we're creating a company with a very large scale in the European PayTech market, that is present in the most attractive markets i t's a mix of very attractive markets. The second, we're creating a product technology and capabilities powerhouse across the payment ecosystem, covering all the various spaces and aspects relevant today and relevant tomorrow.
The third benefit, in particular, driven by the combination with Nets, we have a further scaled acquiring platform with an enhanced e-commerce proposition. We believe these elements creates a superior financial and strategic value for our shareholders, through basically three sources of value, t he first one, that is definitely in the numbers that we're presenting to you.
This creates a sizable, visible, and pro forma synergy result leading to large cash EPS accretion. We're talking about EUR 320 million of cash synergies, 170 for Nets, 154 SIA. And these two combination generate about a 25%, actually higher than 25% cash EPS accretion on a run rate basis. Further, the second source of value is that we're creating a company with stronger growth potential in large underpenetrated markets.
The market reach will be four times the one of Italy standalone, and the penetration in this much larger market is around 33%, so very much underpenetrated and with strong, long, long-term growth potential, and finally, we're creating a group with enhanced resilience through geographical diversification, e-com exposure and lower customer concentration, so what is the new profile of the new Nexi on page five?
Nexi will be the largest PayTech in Europe as a result of actually three major European players in our industry joining forces. Company will be present in more than 25 markets, representing 65%, two-thirds of pan-European consumption, will be the number one merchant acquirer, number one card processor, and the largest company in terms of EBITDA. This company will have a strong growth potential in larger penetrative markets, four times addressable markets, 33% average penetration.
Will have the largest operational scale in Europe, driving material, financial and strategic benefits. It will have best-in-class product and capabilities, especially in acquiring through a leading e-commerce proposition, innovative SME products and a complete omni-channel offer, and it will be more diversified and highly resilient, regardless what the scenarios for the future will be, and obviously, this company, you know, will be positioned to drive and benefit from European transition to cashless.
Page six, the profile of the new group, therefore, is the one that you see summarized here on page six. This company will have 50% of its revenues in merchant services and solutions, 20% of which will be in e-commerce, 33% on card and digital payments, 16% on digital banking and corporate solutions. In terms of geographies, about 50% of the revenues will continue to come from Italy, 26% from a list of Nordic countries, 9% from Germany and another 11% from countries like Poland and others, that do have a very strong growth potential.
In terms of customer concentration, the top 10 customers represent about a fourth of the group revenues, and is actually half of what it is, today, or it was for Nexi standalone. This company will have leadership, for example, in terms of EBITDA and acquiring s o the scale, 2.9 billion EUR revenues, 1.5 billion EUR EBITDA, including synergies.
We have reached about 2.4 million merchants and managing 160 million cards. And we'll have, in particular, strong capabilities, more than 3,000 people dedicated to product technology development, with a spend, a technology spend and innovation spend at around EUR 300 million .
So this is really the super short summary. Let me now move into giving you more details around the transaction, and let me jump to page 8. I will not go through the seven points of the transaction rationale i will spend a bit more time on this one, so let me go into the financial and strategic value creation. This combination with Nets will create EUR 170 million of total recurring cash synergies on top of the 150 from SIA.
Nexi plus SIA, as combined, will generate a cash EPS accretion at more than 25% on a run rate basis and 15% on a pro forma basis in 2022. The pro forma EBITDA of the company will be at about EUR 1.5 billion, including synergies with enhanced growth potential and further overall resilience.
Page nine. Let me give you an overview of the transaction and the key terms, and Bernardo will go deeper into this later. This strategic combination is structured as an all-share cross-border merger on the basis of equivalent 2020 EBITDA multiples. Based on Nexi share prices of Friday, the equivalent implied Nets enterprise value is around EUR 7.8 billion, with an equity value of around six.
There is, on top of these, earn-outs of up to EUR 250 million paid well in shares in 2022, based on 2021 EBITDA, is a significantly lower implied multiple w e would be very happy to pay the full amount. There is a lock-up in place for Nets shareholders up to 24 months. We will not raise incremental debt as a result of the transaction, as it was the case for SIA. There's about EUR 1.5 billion of net financial debt to be refinanced, and we already have a committed bridge facility in place.
The pro forma ownership for the new group, post Nets and SIA, we see Cassa Depositi 17%, Hellman & Friedman, the controlling shareholder of Nets at 16%, Mercury UK, the controlling shareholder of Nets at 10%, Advent International and Bain Capital at 10%, investors and private 5%, GIC Private Equity at 3%, and the remaining 38% will be with our market investors.
The transaction is, as it is normal in this case, subject to a whitewash vote in the context of the EGM that will be called to approve the merger. Page ten. As far as the governance is concerned, the group chair will remain Michaela Castelli, our group chair. I will remain group CEO for the new group.
Bo, currently CEO of Nets, Bo Nilsson, will become non-executive board member of Nexi and chairman of Nets, and Hellman & Friedman will appoint also another board member as a result of the transaction. As far as the integration approach roadmap are concerned, and we'll spend a bit more time later on this one, we expect independent and sequential antitrust approval processes for the two transaction, with Nets merger possibly closing earlier.
We have defined already a clear and phased integration synergy delivery plan, with more synergies driving separately from Nexi and Nexi Nets, which will allow us to focus and deliver. Nets management team will initially be focused on their own standalone growth plan, which is highly accretive, will be highly accretive, for the new group.
The SIA synergies, SIA Nets, Nexi synergies, will be focused on Italy and very clear and fairly low execution risk. But we have also identified a clear set of five faster joint initiatives, to make sure that we start delivering across the group value very, very early on. Last but not least, as far as the implications on the SIA mergers are concerned, we do not expect to have relevant impact in relation to the confirmatory due diligence and approval process in overall timeline.
Obviously, the content of the MOU that we signed the beginning of October is expected to be amended to properly reflect the implication of this new Nets merger that we are announcing today. So this is really the overview n ow let me jump into Nets, and I will spend a bit of time on Nets, starting from page 11, because Nets is a very different company today, and is becoming even further a very different company from what you may remember back from two thousand and seventeen or around that period.
Back then, when the company was taken private, Nets was a company which had basically a third only of its business in merchant services. It was 100% a Nordics company, and it had, at that point in time, a relatively limited exposure to online. Now, the company is very different i t's basically very different because the shareholders and the management team that has been, as you will see in a moment, strengthened with very key new hires, has been basically working in parallel, pulling two key levers, M&A and organic.
On the M&A side, Nets has done a few acquisitions to increase its exposure to high growth markets, like Germany, Poland and other Southern and Eastern European markets. There's an acquisition to increase its exposure to online, not just the traditional gateway products, but also account-to-account and pay later solutions, for example, with RatePay, and recently has sold its corporate services division to Mastercard. Corporate services division was actually a non-core in the portfolio of Nets.
And this sale that will be completed early on next year will also allow to reduce the net debt of the company to EUR 1.8 billion a nd obviously, our deal, the closing of our deal is subject to the closing of this sale to begin with.
At the same time, the team of Nets has also worked on key organic levers. First of all, they have over-invested in improving and strengthening their product propositions, both in merchant services and issuer services. They've done very material investment in go-to-markets, especially outside of the Nordics, to make sure they could reach out not only to larger merchants and e-commerce merchants, but also directly to SMEs.
Last but not least, they reshaped the issuer processor business that is now ready for growth, thanks to the review of the legacy contract, but also most importantly, thanks to investments in products and most importantly, in the new way of wins that they're starting to see outside of the Nordics o verall, the company's invested EUR 8.8 billion in innovation and technology.
Therefore, as a combination of all of this, Nets today is a company that has more than 60% of its revenues in merchant services, the remaining in issuer services. As far as the geographic mix is concerned, more than a third of the revenues are now outside of the Nordics and growing fast.
And last but not least, in merchant services, about 20%, a bit more than 20%, I think, of the total revenues are actually coming from online, and we will see a few more things on the topic. So moving to page twelve, here you see a more detailed profile of the company i will not cover all of it. As I said, today, the company is basically two-thirds merchant services, one-third issuer services.
As far as financial profile of the company is concerned, the company in 2019 had EUR 1.1 billion of revenues, EUR 387 million of EBITDA, with an EBITDA margin of 36% is a company that is continuing to invest big time in technology and innovation, EUR 135 million last year. Let me deep dive into their market exposure, page thirteen.
Starting from the top left, they are obviously continuing to stay present in the Nordic market, that we normally consider to be a market, but actually there are at least seven markets. These are, as a combination of markets, a large market, very evolved, very innovative when it comes to digital payments.
And this is a market that, although already well penetrated by digital payments, it's continuing to grow with clear signals of further potential growth and some acceleration on the back of the COVID emergency that we're all living. And here in the Nordics, the company is active both in merchant services and in issuing. Bottom left, the second largest region is the DACH region, in particular Germany, but also Switzerland and Austria.
As you know, this is a region with massive potential. It's a region that is overall still underpenetrated, probably with the exception of Switzerland, and it has seen a strong digital payment growth as the number of transactions over the last couple of years, double digits a nd here, the company is mainly a challenger in merchant services.
The third area, top right, Poland, a fast-growing economy, a very interesting economy, with penetration still in the low thirties, but actually already experiencing a very strong growth, 20% over the last three years a nd again, here, the company is active in merchant services with a strong focus on e-commerce and SMEs.
And last but not least, the company is also active in Southern and Eastern Europe, in countries such as Croatia, Hungary, Romania. Again, an interesting portfolio of geographies with very low card penetration, quite similar to Italy, and experiencing a very fast growth in the space of 223%, and here the company is mainly an independent processor for both issuing and acquiring.
Now, let's jump into merchant services t hat is the largest division with 62%. In merchant services, the company is obviously active across the three key segments of the market, and by the way, it's active with a verticalized, highly focused organization across geographies already. More than 50% of the revenues, 54% of the revenues are coming from SMEs. About 20%, 19% are coming from the larger omni-channel merchants, and are serving them across the key verticals with a very much dedicated vertical-centric organization.
Last but not least, 21% of the revenues of the company are actually coming from e-commerce and e-commerce propositions more in general, and I will come back to this in a second. Overall, Nets is serving around 740,000 merchants that are in generation units, with a direct sales force of 400-500 people and growing.
The revenue growth in merchant services over the last year has been around 9%, which is actually mid-single digit in the Nordics, that represent about 50% of these revenues, but is actually already double digit in the DACH region and in Poland. Let me now deep dive a bit more on the next page in e-commerce, page 15. In e-commerce, Nets has been aggregating and creating a strong proposition that is now driving accelerated growth i n this space.
As you can see on the bottom left, Nets has been growing around 23% year over year over the next three years. Basically, the proposition is a combination of a gateway and PSP proposition, both for SMEs and LKA, with very specific unique capabilities, such as, for example, one-click checkout with a cross merchant card on file in the Nordics.
Second, they are very active in account-to-account, in particular, in Poland, a fast-growing position, also a must-have position for global merchants in those geographies. And last but not least, Nets is also active in pay later solutions with RatePay. It is a unique white label merchant invoicing and payments collection, pay later collection, with multiple payment option. And this proposition is, at the moment, the second strongest in Germany, with the potential to be exported elsewhere as well.
Bottom right, here you see the geographical portfolio, and here you see that the Nordics are accounting only for one-third of the commerce business. Half of it is actually from the DACH region, and 19% of it is actually from Poland. Let me now briefly talk also about the issuing division, the issuing business, page 16. This represents about 38%.
Within the issuing business, there are actually four more specific areas. There is the Nordics issuing processing, which accounts for about 23% of overall group revenues. Then you have the South and Eastern European issuing processing business. This accounts for about 12% of the divisional revenues, and this is of the back of the business that was acquired from Intesa a few years back a nd then there are another two businesses that are classified within this division.
The electronic ID business, as Nets is operating, the electronic ID scheme for Denmark, and it's used by 99% of the Danish population. They also have 9% of the revenues in what they call digitization. That is a portfolio of services, digital services, such as, for example, billing and recurring payments or digital invoicing, that is a newer business and growing o verall.
This division has 400 EUR million revenues, serves more than 250 financial institutions, with an underlying growth rate of about 5%. Page 17. It's really important to underline and understand the fact that this issuer processor business is different from what it was back in 2017 or 2018 i t has been reshaped and is now ready for growth.
Three things have been done. The first one, the vast majority of the old legacy issuer processing contracts with the Nordics banks have now been renewed and updated as far as pricing is concerned. The current portfolio sees more than 70% of it with contracts that are 2023, 2024, 2025, 2026, and beyond as expiration date. And in any case, are now at full market prices. The remaining 28%, which is about 5% of the group revenues, is up for renewal over the next two or three years, and this has been properly taken into account.
Second, Nets has done material investments in capabilities, and technology, making, the platform, their issuing platform, very advanced, and in particular, you know, at the same time, very flexible for integrating with traditional bank infrastructure, but also very, very attractive for the incoming digital banks.
The third element of this transformation is that now Nets, on the back of this proposition, is also rapidly addressing, the market, the European markets, south of the Nordics. There are already four customer wins in 2020. More than 30 opportunities, new opportunities being discussed and negotiated at the moment with a pipeline, with a total contract value, probability weighted directly around EUR 200 million a nd here you see a couple of names that we can quote of a leading digital banks in the Nordics that are with Nets expanding elsewhere from the DACH region to Poland to the UK.
So all said, page 18. This company is a company that is experiencing a material underlying organic growth. We've adjusted this growth, and we can give you the details later on i 'm sure you find all the details in the appendix for two reasons: the change of perimeter on the back of M&A, that as you have understood, is quite material, and for some one-off non-recurring contracts negotiations that affect all the issuing s o the numbers that you see in a second are adjusted for issuing and for the total, but actually, you know, on as far as acquiring is concerned, they are nominal and underlying as well.
So the company has been experiencing last year a 7.6% growth as a combination of an 8.6% growth in merchant services, around five in the Nordics, and double digit in the rest of the geographies, and has been experiencing around a 5% underlying organic growth in issuing as well. As far as EBITDA is concerned, the growth, the underlying growth in 2018 has been at around 8-9%, again, on the back of the adjustment for the issuing revenues to basically realign the perimeter and also the one-off non-recurring elements.
Strong performance in 2018, but also very visible resilience to COVID in 2020. So far, the company has published their results only a few days ago. Total revenues are at around the level of last year, slightly above it, but actually the Q3 has seen 3-4% year-on-year growth for both divisions and therefore total, while when it comes to EBITDA on the far right.
The company is experiencing 5-6% EBITDA growth in the year so far, with underlying 12% growth in terms of the Q3, also on the back of important cost transformation that the company is leading since last year and is starting to accelerate a bit of growth as well. Last but not least, page 19. The company is now led by a large, strong, extended multinational team.
Bo Nilsson is leading the company, has been leading the company through this transformation with the key support of Klaus Pedersen, that I'm sure many of you know as group CFO and really key driver together with Bo of this transformation. But there are two new people, newer people, very senior, leading the two vertical businesses across geographies.
Robert Hoffmann, that is leading merchant services, with a background in payments from Concardis, but going back, a deep and long-term leadership background in telecommunications, that you know, have a lot of similarities with our business. Second, Torsten Jørgensen is now leading the issuer and eSecurity division. Torsten joined the company more recently after covering very, very senior responsibilities, both in Nordea and in Danske Bank in the Nordics.
You see many other names in this page, people with broad experiences, experiences from banking, yes, but also payments and technology, covering from e-commerce to products to sales. Now, this is what we plan to share with you, and I'm happy to go back to these in the Q&A session n ow, let me go back to the key elements of the new Nexi Group equity story, page 27. Seven are the key elements for the new group.
The new group will be the largest European platform with the scale to drive superior product and efficiency leadership. The new group will have significant growth potential from leadership and exposure to key attractive European markets. The company will have a full solution portfolio across payment ecosystem, with key strength in acquiring and e-commerce.
The company will benefit from a best-of-breed technology platform and capabilities, people, with a high level of complementarity and scale. There will be significant value creation for our shareholders from highly visible and properly phased synergies. The new group will have superior profitability and cash generation at scale with enhanced resilience, and the new group will be uniquely positioned for further organic and inorganic growth in our continent. Now, let me start with scale. Page 21.
We really are not fans of rankings and stuff like that t his is really far from our mindset, but we like scale, because scale is what generates value for our shareholders, not rankings, and scale is something that we do already whatever we could to achieve scale in our country, in Italy.
This was already the reality for Nexi standalone, even more so with the combination with SIA. And now we are bringing scale to the next level, on a geographically broader scope in Europe a nd scale delivers very key benefits, and you see them here on the right of this page o bviously, efficiency and operating leverage. Obviously, the ability to invest in innovation and in technology, thanks to the financial firepower, the economies of scale, again, EUR 300 million of technology spend, but also the availability of an amazing group of people and capabilities and competencies, more than 3,000 people in that space.
Third-... scale will allow us to have an e-commerce European platform at scale and investing further in that space, and omni-channel large merchant proposition, to be successful, not only in the local merchants, but also on the cross-border merchants.
Will allow us to serve better and better our national banking clients in our footprint, but also outside of our footprint and cross-border when we see banks active cross-border, but we also be positioned as a key partner for the broader ecosystem initiatives a nd last but not least, this scale will allow us to cross-fertilize from one market to the other in terms of products and capabilities. The second point, page 22, is the market exposure. The new group will be exposed to about 25 markets for a total consumer spend of EUR 4.6 trillion, which is more than four times the consumer spending of Italy.
The average digital payments penetration in this geography is around 33%, which is a mix of 24% for Italy, 30% for the DACH region, Poland, and Central and Southeastern Europe, while the Nordics are more advanced.
Last but not least, when it comes to card transaction volumes, now this is a portfolio that is experiencing fast growth, especially in markets such as the DACH region, Poland, and Central and Southeastern Europe. Page 23. Here you see the map, and actually you also see how we see it. The logic of this map is quite simple: horizontally, now, the market share, the market presence from lower to higher, and vertically, the card penetration, therefore, the further secular growth potential for the market.
And these portfolio markets will offer us a good mix of market growth, markets such as, obviously, Italy come to mind, but also Germany, Poland, Austria, Southeastern Europe. Potential market share growth, again, Germany, Poland, Austria, Switzerland, Sweden, Southeastern Europe, but also across all of them, thanks to an even strengthened portfolio of products and services, more growth, thanks to higher value products we can offer to the partner banks, to the merchants, to the consumers.
Overall, on the right, from Nexi to the new group, consumer spend four times larger, card penetration from 24%- 33%, and actually volume growth over the last few years, going from high single-digit to low double-digit. Now, let me move to point three, page 24. The new group will have a full solution portfolio across the payment ecosystem, with key strengths in acquiring and e-commerce i promise you, I will not go through the details of this page, but I just point to a couple of areas o bviously, SME solutions, where the combination of what Nexi does and what Nets does is gonna be very powerful.
Omni-channel and e-commerce solutions, where again, the contribution from Nets is absolutely key to provide the strength of the new group across the different angles of e-commerce and omni-channel. In card and digital payments, now a further strengthening of the positions for mobile payments with account-to-account solutions, for example, and the domestic schemes management on top of what Nexi and SIA do for Bancomat in Italy y ou know, as you may remember, Nets is, for example, managing the Dankort scheme, that is the national debit product for Denmark.
Let me just dive for a second on page 25 on the acquiring proposition in a segmented way. The new group will have dedicated propositions for SMEs, e-commerce at scale, and industry-specific omni-channel solutions as well.
In SMEs, this will be the combination of what the three companies do, in particular, Nexi and Nets at the beginning, and we will continue to develop this as a next generation SME proposition for every single of the markets we're in, and potentially further. Here, we benefit from a strong portfolio already, and with a go-to-market that is, depending on the market, a strong mix of bank partners, like in Italy, but also direct sales force in the markets where Nets operates more directly.
The second area, e-commerce. Again, the portfolio is gonna be a combination of what Nexi is already doing, but a lot of it will come from the investments and the capabilities of Nets around their geographies, some of them being really unique l et me mention again, the later solutions or the one-click checkout or the unique collecting PSP capabilities that they have.
In this space, behind what the products are today, now, the new group will have about 700 people fully dedicated to the technology and commercial development of the business. And last but not least, in the proposition for the larger merchants, omni-channel merchants, both local and cross-border. The company will have key strengths in many of these areas, with a vertical focus and benefiting from a salesforce of already more than 100 people in these geographies and growing.
A very strong portfolio of products and services, and getting stronger. Let me now move to point four: the company will benefit from best-of-breed technology platform and capabilities, leveraging on the complementarity and scale h ere on page 26, you see graphically how we see the different platforms coming together, mixing and matching what the three companies already have or are developing.
These will allow the new Nexi, the new group, to be very strong with in-house capabilities across all the portfolio of the platforms that we will need for our future. Most importantly, page 27, the company will benefit from capabilities that are absolutely unique to do more, to deliver for our banks, for our merchants, for our customers. In at least five areas, the company will have cutting-edge product development capabilities in e-commerce and omnichannel in particular.
Let me just mention, again, the 700 people, more than seven hundred people, fully dedicated to e-commerce. The company will have next-generation digital and data innovation capabilities. As a group, we deliver more than, 30,000 new IT releases yearly. The new company will have clear leadership in processing and core platforms.
The new company will have deep banking and system integration with superior delivery capabilities. The three companies coming together have, deep roots in partnering with banks, especially in their own markets, and this is going to continue to be very important, for the future, especially in certain market segments, and the capability to work with banks on mission-critical services will remain a key success factor, and last but not least, the company will have also leading capability in mission-critical, infrastructure management.
So all we have seen, we believe, delivers strong value for our shareholders. Page 28. On top of the EUR 150 million synergies that we have covered with SIA, and we expect from the SIA combination, this additional combination will generate about EUR 170 million. Here on the left, you see the three years, and Bernardo will give you more detail.
On the cost side, we expect to have about EUR 95 million of synergies, basically through the rationalization of all the technology platforms in a gradual and phased timeline to account also for the ongoing developments and migrations. They will come from the creation of shared services and competence centers to leverage the best we have around the group in the different geographies and targeting operational excellence across all activities. And last but not least, obviously, central procurement and purchasing will be a key lever.
Second source of synergies, about EUR 60 million , generating around EUR 40 million at the EBITDA level. These will come obviously from the cross-fertilization around e-commerce solutions across the different geographies, the cross-selling of omnichanel solutions.
Cross-selling of the SME propositions, and also the cross-selling and up-selling of the issuing solutions that in particular, Nexi has initiated in Italy always remember that in Italy, we're not just an issuer processor, we're also a co-issuer to the partner banks, potentially of Nets, and also in developing the new business that Nets is developing around Europe. Last but not least, another EUR 35 million coming from CapEx synergies. They will come from CapEx optimization, avoiding duplication of investments, joint investment planning, and best-of-breed platform consolidation.
These EUR 170 million cash synergies, combined with the EUR 150 million from SIA, will generate for our shareholders, a 2022 cash EPS accretion above 25%, and RF synergies at around 15%, and saving synergies. On page 29, you see some more specific and practical examples of things that we will be doing on revenues l et me jump to this page to move to page 30. Point six of the seven pillars, the new group will have superior profitability and cash generation at scale, with enhanced resilience.
EUR 2.9 million of revenues, EUR 1.5 billion of EBITDA, with an EBITDA margin around 50%, operating cash flow at around EUR 1.2 billion, with about 80% cash flow conversion, and with a portfolio of revenues with a revenue mix that will make the company not only a further growing company, but also a more resilient company.
Geographical mix from 100% Italy to basically half Italy, which, by the way, makes us very happy because we like a lot Italian market, but then further exposure to other geographies with different dynamics. Second, exposure to e-commerce going up to 20% in merchant services for the new group. And last but not least, a customer concentration that goes from 14%- 27%. And just as a reminder, out of that 27%, a good 13% is with a top two customers, where the contract extension has already been extended to 2036 and beyond.
Last but not least, page 31, this company will also be uniquely positioned for further organic and inorganic growth, starting from one, the strong market tailwinds, not only in Italy, not only in Germany, that is a market with amazing further potential, but also in a market such as Poland, Central and Southeastern Europe. Second, now, further growth will come from the priority initiatives that we have in place, in particular, e-commerce, if I need to press one.
Third, the company is already active and exposed to capture further growth in very specific, innovation opportunities, such as pay later services, account to account, automatic payment method, merchant services and e-commerce, business to business and corporate payments, open banking, data products and artificial intelligence, and so on and so forth.
Number four, we believe that there are longer term further synergy opportunities. Technology will allow us to continue to increase operating leverage, and obviously we'll continue to work on operational efficiency, and finally, this new group will be exposed, will be in a position to further capture, M&A opportunities if available for the new group, along basically three angles: e-merchant bolt-ons or merchant books. Second, banking assets, you know, potentially in same space of the previous point, but also given the new scale, product and technology capabilities and assets.
These are the seven pillars of the new group. How do we plan to execute this? Page 32. And we try not to take you into all the details, that are behind this page, but we really want to make sure that we give you a sense on how we will manage it.
We will have one focused transformation program with clear integration priorities and phasing. The phasing is important. You have to make trade-offs when you do phasing, and therefore, now, the phasing is intended to balance at best value creation short term, but also making sure the execution works well. And it is really important to understand there are very limited areas of overlap in integration efforts for Nexi, Nets and SIA here, respectively.
The Nets management team will continue to stay very focused on delivering its own strong value creation plan for some time, 2021, definitely, and a good part of 2022. Their growth plan has a unique value creation potential for our shareholders, also on top of what we've included in the numbers that you've seen so far, and that's also the logic of the earn-out. That's something where the local management team will have commitment, engagement, and focus.
In the meantime, we will accelerate the Nexi-Nets integration that is focused 100% in Italy on the effort side, but also on the cost synergy side, while the revenue synergies will come mainly from issuing digital banking and corporate solutions. Later, from 2022, now, also the Nexi-Nets integration will accelerate.
Again, this will have cost synergies integration more internationally, but with revenue synergies, more focused, mostly focused, I would say, on merchant services. We have already identified five key fast-track joint initiatives that we will start as soon as we can, to make sure that we deliver value rapidly and we take competitive advantage rapidly.
The five are the ones that you see in the arrows in the middle of the page at the bottom. The new group will focus on one European e-commerce and e-channel proposition. As a combination of the best of breed and the development on top of it, what's already available o ne SME next generation proposition.
One technology plan that the high level is already ready, one joint OpEx and CapEx resource planning and optimization to make sure that the companies from day one don't spend, don't invest in areas where there is already investment and spend happening, on the group a nd actually, this is the lowest hanging fruit in any integration, and obviously, last but not least, joint procurement optimization.
The last point that I want to make is that the breadth and depth of seniority and talent within individually, the three company, Nexi, Nets, and SIA, will allow us, at the same time, to continue to stay totally focused on the delivering of the growth for the ongoing standalone businesses while we deliver the transformation. Page 33, and again, I promise you I will not go into detail, but also gives you the message that I was summarizing before.
The synergy plan is very focused and has very limited overlaps. The dark blue highlights the synergies that are expected to come from the Nexi-SIA angle. The lighter blue highlights the synergies that are expected to come from the Nexi-Nets angle. And as you see, the vast majority of them are either coming from the Nexi-Nets angle, for example, merchant services, revenue synergies.
For example, merchant services, technology consolidation. While a good list of other synergies are coming only from the Nexi-SIA combination, for example, in corporate services, for example, when it comes to the national debit consolidation platforms in Italy or in corporate solutions or data center consolidation.
There are only a few that are more of a mix, and they are very focused, and these will allow the teams to stay focused on what needs to be achieved in a very, very clear way. Now, let me now hand over to Bernardo, who will take you through more details on the value creation and the financial benefits.
Thanks, Paolo, and good morning from me, too. Now, as Paolo has already discussed in detail the significant strategic industrial merits of this transaction, I'd like to highlight and focus on the four key value creation and financial benefits, which are highlighted on page 35. First, let's start with EUR 170 million of cash synergies.
These will drive cash EPS accretion in excess of 25%, starting from 2022. This adds approximately ten percentage points to the Nexi SIA accretion, which we've already discussed back at the beginning of October when we announced that transaction. Secondly, moving from our home market focus to pan-European reach really improves our growth drivers and gives us access to large, under-penetrated markets such as Germany and Poland.
This increases the addressable market by four times, as we've seen on the slide earlier in the deck. And it also gives us a welcome exposure to e-commerce, which has often been the focus of attention and discussions with investors and the sell side in discussing the Italian e-commerce market t his obviously gives us access to a much larger sector in the transaction.
With regards to point number three we wish to make, we'll have a better diversified business. 60% of revenues will be transaction driven. We will have lower customer concentration and a very balanced mix of both merchants, banks, central institutions. We also have an increased exposure to direct acquiring through the merger with Nets. This will give us deeper access to merchants and relationships with merchants across Europe, and also incremental economics.
The fourth point I wish to make is that with regards to operating gearing, we will have operating leverage, which improves, driven by scale efficiency. The new group will benefit from lower marginal technical processing costs and generate approximately EUR 1.2 billion of operating cash flow per annum. Over three years, this means we will add approximately EUR 2 billion of cash, and I wish to also underscore how the transaction is carried out without raising any additional debts o ur capital structure will remain aligned with our plan. Moving on to the financial profile of the combined group on slide 34.
The merger of Nexi with Nets and SIA will create a Pan-European player, as we've discussed, with significant scale, which we strongly believe to be a key competitive advantage in the payment sector. The new entity will have approximately EUR 2.9 billion of revenue, so close to EUR 3 billion of revenues, and EBITDA, including synergies, are approximately EUR 1.5 billion.
We will maintain our industry-leading profitability, which is an EBITDA run rate margin in excess of 50%. Cash conversion will remain and continue to be strong at north of 80%, further supported, I'd say, by the incremental synergies and recurring CapEx savings we'll discuss in a second.
Our capital structure will remain sound and positioned well within our comfort zone of being between three and three and a half times leverage a t closing of the transactions, of both the transactions, will be a three point three times with a quickly fast leveraging profile, which will take us within 12- 18 months, I'd say, to between two and a half times, which was our target we stated at the time of IPO in April 2019.
I think we can now focus on synergies on slide 37 a s Paolo has already spent some time on the nature of the synergies and on how we're going to manage integration and overlaps with domestic merger, I'll only comment, I would say, on the financial aspects. Overall, we'll benefit from circa EUR 117 million of incremental synergies in addition to those we announced with regards to the SIA transaction, of which 135 of these are going to be P&L savings and incremental revenues.
95 million will come from cost savings, primarily in IT, operational excellence, and procurement. We will add approximately EUR 40 million in incremental revenues coming from, I would say, primarily merchant services, cross-selling, and the upselling of complementary capabilities s o think of selling SmartPOS to Nordics for e-commerce products in the Nets Group to Italian customers. And in addition, we also have a plan to roll out our co-issuer model, as Paolo mentioned earlier, that we operate in Italy to the Nets client base.
Approximately 80%, or actually in excess of 80% of these synergies will be achieved by 2024, and we're very confident with regards to delivering in light of the significant amount of work we've done so far as part of our due diligence process together with our colleagues and the management team of Nets, on IT in particular, I'd say, to identify all the initiatives need to be put in place, in order to achieve these targets.
Slide 38, with regard to cost and CapEx synergies, these are highly visible, I'd say, and with a low execution risk profile. I know some of you are concerned, have had the chance to speak to you over the past few days i know some of you are concerned by the fact this is our first big move outside of Italy. But a number of us, I'd say, starting with Paolo, of course, have experience in large multinational businesses, and we can count on a top quality management team at Nets that will help us with this integration.
Now, we've been realistic also and practical about phasing with most activities, I would say almost all of them, but procurement starting from 2022 , and Paolo mentioned this earlier as well in some of his charts. Nets' management team will initially be very focused on delivering their business plan, where significant value remains to be extracted. On the IT front, we have approximately EUR 40 million of savings, which will come from basically, you know, multi-hub digital factory, which will be set up to serve the whole group.
We'll migrate acquiring volumes onto the Nexi Wave4 platform, which is our new core acquiring platform. The group's switch platform will be Nets's, you know, state-of-the-art UNI platform, and we'll do as much work as we can on consolidating data center, subject, obviously, to restrictions which we may face in terms of data privacy, but some work can be done there as well.
With regards to the HR perimeter, we expect to optimize this. There is no insourcing plan, but there may be some nearshoring of activities and selected functions, in particular, I'd say, IT. Whereas with regards to procurement, as you can imagine, joint negotiation, volume bundling, we'll, you know, rationalize purchases, all leveraging our scale y ou can think of us as being probably the largest buyers of POS terminals, for instance, and other areas where obviously scale matters in terms of obtaining bulk discounts.
We also have some real estate and head office rationalization and therefore cost reduction associated with that. The total of this is 95 million EUR of EBITDA synergies and a run rate saving of sorts of 35 million EUR in terms of CapEx associated with, in particular, I would say, IT, but also on procurement. Moving on to a view of the synergies of the three-legged combined entity, we believe these combinations of Nexi, Nets, and SIA offer us the opportunity to extract in excess of EUR 320 million , and this drives, in my view, a compelling story of value creation for all our stakeholders.
I don't want to dwell too much on this slide, but please let me just underscore how we've drawn up, and Paolo's mentioned it in great detail, a clear integration delivery and synergy delivery roadmap, which will be delivered and led by experienced colleagues across all the different work streams. Finally, on this page, on the bottom right, you see how the combination of all three entities generates a 2022 Cash EPS accretion in excess of 25% on a run rate synergy basis a nd even if we take in the phase synergies, we're in the mid-teens in terms of overall EPS accretion, which is, in our view, a very compelling story.
Now, on 40 , I'd like to just spend a minute or so and a few words on how we achieve this increasingly diversified and resilient revenue base, and business profile by combining the three companies. 52% or more of the group revenues will come from acquiring.
More importantly, as we have started already in, in Nexi, and this accelerates the process, we're moving, more and more towards a direct acquiring, model. And this will be a significant majority of acquiring revenues, North of 70% of the combined group will have, 70% of the revenues, merchant services, and the combined group will be direct acquiring.
Also, you see this in a call-out on the slide, e-commerce will account for approximately a fifth of all merchant service revenues, which, you know, is a quantum leap compared to where we are today in Italy at Nexi.
From a geographic standpoint, three-quarters of our revenues will be generated in under-penetrated, high-growth markets. I, you know, repeat the data before, we are moving to having four times the size on addressable market with similar under-penetration to the Italian marke i think 33% was the average. Italy will, of course, remain core to our business, representing, though, a much lower proportion, lower than the 100% at Nexi, lower than 70% or the 85% when we merged with SIA. It's approximately going to be 54%.
Finally, from a customer concentration standpoint, which often has been, you know, discussed and has come up in discussions with all of you with regards to contract renewals, et cetera, we move to being a business with top ten customer concentration, accounting for only a quarter of all our revenues, and this all, I think, you know, moves us to becoming a much more resilient business compared to a wide range of macro scenarios which we may face in the coming years. On slide 41, we try and summarize an area which has been a great focus and attention during the course of our due diligence process.
The increased exposure to acquiring obviously led us to look into certain verticals, which historically have proven to be riskier, both from a business and a credit standpoint s o think of travel, of course. Now you know how we work in Nexi, and you have our data. We have a very fragmented customer base from a merchant standpoint. Cost of risk is generally covered by our partner banks, and this is very true in terms of our direct and referable.
I think I took great comfort in discussing with Klaus and the colleagues at Nets how ultimately how limited the exposure to travel was, the travel book was at Nets, and it accounts for, as you can see in the chart here below, approximately 5% of total net merchant service charge. This is actually even lower if you look at it and measure this exposure as a percentage of revenues of merchant services solutions, it's approximately 2%.
And even if we look at it from a risk perspective in terms of volumes, as a percentage of the volumes in merchant services, Nets's exposure to travel is roughly similar to that of Nexi, or 18% compared to 14%. We also ascertained that there have been great improvements over time, and Nets is under underwriting process with the introduction of cash guarantees, cash collateral guarantees, and the termination of many higher risk contracts.
Of course, Thomas Cook has been fully covered, and you know, reading in the press, there are a number of other, in particular, one, I'd say, large German tour operators whose exposure is being proactively managed so that it now represents a negligible amount and therefore, not a concern as part of our diligence process.
If we also take a look, and on slide 42 now, on special items or transformation costs, you know, those one-off, non-recurring costs are booked below EBITDA, because they are presented as a set, non-recurring set of items w e see a familiar pattern in Nets compared to what I experienced or we experienced at Nexi b oth companies have undergone significant transformation during the period of sponsor or private equity ownership.
Both have had significant costs related to restructuring and transformation, but over time, have been reduced very substantially. If we look at the Nexi graph, the 66 million is actually excludes M&A-related costs t he gross number in 2018 was actually EUR 170 million , include M&A, et cetera, and this has been shrunk to 30% s o even if we exclude M&A, the reduction is close to 55% w e, as I said, we see that what has happened in the past at Nexi, and I know there was a lot of concern at IPO, but ultimately, I believe we delivered on our commitment.
What we see at Nets is a very familiar story, and we see that transformation costs are now down 45%, or expected to be down 45% this year compared to 2018, when Concardis was bought and the transformation began. If we include restructuring, and Nets has undergone, in particular in 2020, a very large restructuring program, which, you know, which contributed to this large restructuring charge in 2020 e ven if you build that in, the reduction is 15%, and we expect that what I said for Nexi will hold true over time for Nets as well.
Before moving on to transaction structure, I just wanted to go over one of our key beliefs, and I would say that as Paolo has his favorite chart, I also have mine, which is simpler, though I would say, and our strong belief is in strong cash flow generation and disciplined capital allocation. This is, you know, a critical element of success, and I believe a virtuous circle, which we work to achieve.
It allows for leverage to remain under control. It drives and gives us the opportunity to invest also in M&A, which in turn then provides the opportunity to extract synergies and then complete, you know, complete the circle by improving our cash generation, so on and so forth. We've also mentioned the key cash flow metrics before, but let me just highlight them again. We have an expected cash flow of approximately EUR 1.2 billion .
This will allow us to generate approximately EUR 2 billion over the next three years and reduce leverage from the expected level at closing of 3.3 times t his is on a combined Nexi and Nets/SIA basis, to 2-2.5 times within the next 12-18 months, which is, as I mentioned earlier, in line with our ambitions stated at IPO. Now, slides 44 and 45 summarize the key aspects of the transaction, and then we'll take questions if there are any doubts with regards to how all of this is going to be structured and how the two transactions, which are independent one of the other, interplay with each other.
With regards to the Nets merger, this will be structured as a cross-border European merger. The exchange ratio was set, and we announced this, 10 days or 15 days ago now, on the same multiple basis this currently implies on Friday's close, an enterprise value of EUR 7.8 billion w e'll be issuing EUR 406.7 million new Nexi shares to the Nets shareholders. This means that the equity value is approximately EUR 6 billion and EUR 7.8 billion enterprise value if we factor in the net debt.
The shares that are issued to Nets shareholders will be locked up and progressively re-released over two years. There is no incremental debt being raised, and the refinancing of Nets' existing capital structure is being bridged by a pool of banks. Now with regard to deal certainty, it's important to highlight that we have received an irrevocable undertaking by Mercury UK to vote in favor of the transaction at the EGM.
We've also been in touch with Intesa Sanpaolo, key shareholder of Nexi, who's highlighted and written to us expressing strong support for the transaction. On the right, you see the pro forma shareholder structure. I just highlight how NewCo will benefit from a balanced mix of both strong support from institutional long-term investors and a significant free float. Finally, before handing the floor back to Paolo, just a quick overview of the timeline. Now, Nets is expected to file w e're expecting to file the Nets merger documentation with DG Comp by, I'd say, mid-January, 15th of January.
Closing of the sale of Corporate Services is a CP to this, and is expected to be closed his transaction is expected to be closed around about the same time, I would say. We expect to hold our EGM somewhere between late January and mid-Februar.
And the overall closing of this transaction is anticipated to occur at some point in the Q2 next year. In the meantime, SIA will progress based on its own timetable, which is summarized here w e expect this to be unaffected by what's going on with Nets, so closing still is anticipated to be at some point in the summer. So thank you for your time, and let me hand over back to Paolo for concluding remarks.
Thank you, Bernardo. Let me close on page 47, basically reiterating the three key messages that I expressed at the very beginning. We took you through a lot of content i 'm sure we'll have many more conversations and questions over the next days and weeks, and months. But at the end of the day, the three key messages are the following.
We firmly believe that we are creating a stronger Nexi as a combination of the three companies, with more growth potential, thanks to a much broader market exposure, larger scale, and stronger products and capabilities. We are creating a more resilient Nexi, thanks to geographic diversification, e-commerce exposure, and lower customer concentration.
The second message, Nets is a growth metric, is a company that has transformed a lot since 2018, and is now a growing company that is also executing a strong growth plan, which has further growth potential. The third message is that we will execute effectively. We already have a clear, focused, and phased integration plan, and most importantly, we have a pool of talent, seniority across the three different companies that will allow us to execute the transformation, but at the same time, stay focused and deliver for the growth of the standalone three businesses. Let me stop here, and let's go into Q&A.
Excuse me, this is the conference call operator w e will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Josh Levin with Autonomous Research. Please go ahead.
Good morning. Thank you. I have two questions. First, can you talk a little bit about the timing of the deal? If you don't intend to start the Nets integration process until 2022, and Nets will run as a standalone company until then, why? acquire it now rather than wait and keep your options open and not have to pay the EUR 250 million earn-out if they succeed on the plan? And then the second question is, if Nets were not to deliver on a standalone plan, does Nexi have a way out of the agreement between now and 2022? Thank you.
Good morning, Josh, and thank you for your questions. Well, first of all, it's important to underline the fact that, in any case, the Nets deal will probably close in the Q2 of next year, which is only six months away from the beginning of 2022 . So we're not really waiting too much to start the integration a nd second, is also worth underline the fact that, as I said before, a lot of work will start immediately to capture the lower hanging fruits with the five fast track initiatives that we will start working together with them on as soon as possible, definitely not waiting for 2022 .
So I think, when we say, you know, that we'll accelerate on integration from 2022 , we mean, if you like, the deeper work on more operational and organizational aspects that do not necessarily believe, does not necessarily deliver most of the synergies. That's the first point, the first two points, those are the two points I would like to make.
The second key point is that you need to make things happen if you believe into them, when you can make them happen. Let's be clear. It was not in our plans, it has never been in our plans to do two type of deals like this, a few weeks, one after each other. It's very clear, no?
We've been considering and working on them for a lot of time, and then it happens that, in particular, on the Nets deal, we had the opportunity to make it happen now, and probably not later, for many reasons, that we may discuss, and so on and so forth. That's the reason why we decided to go for it now. We had to go for it now. Before going for it, we have been doing as much work as we could, not only on the company, but also on how to handle the two integration and then the plan, and so on and so forth w e've been clear about the trade-offs here as well.
Then we had to decide to go now, because this was the most attractive, by far, the most attractive and unique opportunity for our company to build scale beyond Italy. We could do it now, not necessarily later. That's the reason why we're going in this direction. No, we are convinced on your last point, on your second point around the Nexi standalone plan t hey have a very strong plan, and we clearly support them in making it happen.
We believe it has further potential that it can have further potential that is not fully baked into the price, and that's the reason why you have an earn-out. But, we are marrying with Nets, we are combining the company for good. So, earn-outs have a different logic, is to make sure that, you know, we are all incentivized to drive as much as we can value for our shareholders out of our assets.
Thank you.
Our next question is from Hannes Leitner with UBS. Please go ahead.
Yes, thanks for letting me on, and congrats to the deal, first of all. A little bit also on the synergies. Based on the EBITDA, you are paying for the Nets, it's, including the earn-outs, it's over twenty times compared to, 19 point four times on, on our estimates on Nexi.
Could you? help us understand what justifies that premium, given you have built up a short but, still a good track record? That's the first question t hen on the cost synergies, also the 95 million identified, on the, on the Nets trans side, how much of that comes already from just the consolidation of all their acquired assets? So kind of just executing the, the Nets standalone roadmap, as you mentioned on, on just on the growth plans. On that context also, what is the synergies, the potential synergies between SIA and Nets?
Hi, Hannes, it's Bernardo speaking s o with regards to the EBITDA multiple, I think, you know, first and foremost, I go back to our the way we look at M&A in general, which should, I hope, help you understand how we are thinking of these opportunities w e always look at M&A to see if the asset has a strategic fit, if it's the right business for Nexi to buy or merge with.
We then look at, we also look at the value creation there, and we try and exemplify the value creation through EPS accretion. And we obviously look at how this is, you know, impacting our ordinary business and our ability to carry out these transactions. Now, you can always pay less for an asset, right?
You know, we could have obviously tried to negotiate a better price, but we were unable to t his was the price at which the deal could be done, and we believe it ticks the boxes I was mentioning earlier w hen we started negotiating with Nets, our share price was higher, and we struck the deal and fixed the number of shares at 407 million, I think, based on... This is just, you know, for background, for color, when, I think, we had the share price for Nexi to use was 15.8 times, and at the time, the multiple was pretty much the same.
Now, you use your estimates, we use ours, there's like this consensus. If you use the consensus on the street at the time, it was the same multiple. Now, as the share price fluctuates, you know, the multiple will go up, will go down. And that's, I think, all I can say i think we stick by the fact that we'd rather do a deal which creates this kind of value than not do it, because there's a you know, point five times differential in the EBITDA multiple.
And with regards to cost synergies, so these cost synergies are exclusive of what Nets will be doing on its own a s Paolo was saying, Nets' management team will be very busy delivering their own plan, and there's significant value embedded there in what they're doing. They announced the beginning of the year, a big downsizing effort in terms of of staff, and that will be implemented over the course of twenty, the remaining year, remainder of twenty twenty-one, but also 2022 . Those synergies we've identified are all incremental a s I was saying.
They come from... They wouldn't be achievable by Nets on a standalone basis, and are only achievable thanks to the fact. For instance, I'll give you an example o ne of the big synergy areas for us is processing acquiring volumes on our new core platform, which has a much lower unitary cost than the one that Nets is running, and vice versa for the switch, where UNI is a much better platform than the one we would have.
In addition, I think I mentioned the fact that we will do our best to rationalize data centers and try and consolidate our European footprint, optimizing our size, and again, this is something which only comes with scale and the fact that, you know, the merger actually happened, so all of the cost synergies are incremental, and as Paolo's slide, I think 33 it was, shows they are pretty independent of what can be done in Italy, for instance, on the SIA transaction, so those are additional n ow, there is one area where doing a deal with SIA helps us with Nets, and that is on issuing, but I think that's pretty much it.
Yeah. A nd then, Let me just add to what Bernardo said on the multiples i mean, Bernardo took you from the reality of it a t the end of the day, these are same multiples evaluations l et me just add that as we hope, we will also be paying a healthy earn-out, because there will be a further value creation into Nets. The multiple will also be diluted down on the back of it.
... just to follow up, so I actually was implying or inferring that, Nets should trade at a discount, given just what your track record as a public company is. But I understand your calculation. Then I have two minor follow-ups. The first one is on e-commerce and the travel exposure. It seems like 18% travel exposure, and then overall, 10% of the enlarged group. Can you give us there? is travel so much less of a revenue generator for the enlarged group, that there is this drop through in that sense? And then the last bit is around running off of contracts on merchant service side.
It seems that the core assets, the underlying growth, I mean, you have provided some underlying growth data, that the underlying growth of the Nets core asset has not contributed massively to growth over the recent times. So what is your plan to ignite their growth? That has been already the problem in Nets previous public company journey.
Sorry, one comment on the multiple Bernardo went through the way we look at these things, but I and obviously and we understand your point, but you will also argue that they are more exposed to merchant services and e-commerce, and therefore, I think when we start having these conversations, they become suddenly very difficult now, and because they can go all directions think that all these directions are valid at the same time, and therefore, at some point, you need to strike a balance here.
At the end of the day, what really matters is that it's creating a lot of value for our shareholders, financial value for our shareholders, on top of the strategic value that this creates, for the long term of the company, that ultimately will generate further financial value, longer term.
On the acquiring contracts of Nets, the reality is that, Nets doesn't have a single, very large acquiring contract. Because basically, the vast majority of all what they do is directly with the merchants, and therefore, the level of concentration is incredibly low, and therefore, you don't have one single contract that can change the shape of the company. By the way, as I said before.
The growth that Nets is experiencing in e-commerce is not adjusted for anything. They've been growing last year 9% t hey're growing this year as well. And this growth is coming, I mean, the business you've seen the numbers before is about 50% in Nordics, and they're growing about 5% in the Nordics. The rest of it is coming from Germany, Switzerland, Austria, Poland, and those places they're growing more than 10%. So we believe it is a very good business growing organically very nicely with further potential given the shape and the exposure of it. On travel, Bernardo?
Hannes, to be perfectly frank, I didn't quite understand the question on travel i think what we said was the travel vertical at Nets, in terms of the transaction volume size of that, 18% is not too different from what we have at Nexi. This is, by the way, 18% if we look at the transaction value for sub-sector of overall merchant services, so it's SMEs and LACA. And Nexi, it is approximately 14%, if I remember correctly.
If you measure it on a percentage of total revenue, so if you include the revenues you make in merchant services, also from POS terminals and everything you make on, you know, on all kinds of that business unit, the percentage is 2%, if I remember correctly 5% , if you measure it as a percentage of the merchant service charge.
I didn't get then when you then said, you know, on the combined group, it would be 10% or something like that, and I didn't quite understand what. That was in relation to assuming that e-commerce is predominantly an online business. I guess you have also some normal travel shops or travel agents, in-store travel agents.
But if you assume that quite a big ratio of that is e-commerce, then in relation to that context of your total e-commerce exposure, travel is quite a big share of it. And or it's on the revenue side, it is actually quite a small share compared to the travel transaction value exposure. So that was rather more the explanation on that on the profitability of that business. Yeah, well, I mean, the e-commerce portion of travel in LACA would be captured in the numbers I was giving you.
Yeah. I'm not ure- Should be all-in.
Yeah.
Okay. Thank you.
Thanks.
The next question is from James A. Goodman with Barclays. Please go ahead.
Morning. Thank you, thanks for the comprehensive presentation. Firstly, Paolo, you mentioned that Nets operates Dankort in Denmark, I think it owns the scheme actually, and Ascentra also operates the Norwegian scheme s o could you remind us? just how important domestic card schemes are to the business versus the international schemes? Germany is obviously a fairly domestic card scheme-focused market as well, and that's the first question.
And then secondly, just focusing a little bit more specifically on Germany, clearly, Concardis is a key growth driver here. Sparkassen I think sold out of Concardis, but they're still in the A1 JV with Ingenico. And I think they signed a long-term referral agreement there. So just in light of that, I wondered if you could talk us through the competitive situation these days in Germany? Whether you expect Concardis to carry on at that sort of well into double digit growth territory?
... And if I can just squeeze in a quick clarification. But Bernardo, just, can you just give us the adjusted net income of Nets? I may have missed it in the presentation, but I don't see below EBITDA, and I just want to get a sense of the D&A intensity and tax rate. Thanks.
Good morning, James. So on the domestic schemes, well, I mean, thank you for the question, because this is actually one of the reasons why we were attracted by Nets, and that's definitely one area where I think the synergies will be important. I think that as penetration in markets grows, the reality is that debit becomes more and more important.
And it's visible in the Nordics already, quite materially, is less so in other markets. And therefore, you know, having a competitive next generation local schemes, domestic schemes, is very important a nd you're right, the Nets is managing Dankort in Denmark as a scheme i t's not just from the technology standpoint, but also as a scheme together with the banks t here is a joint governance with the banks, as is normal and I think also right.
And they're also managing the vast majority of the acquiring for it. And this is something that is interesting for us, because in other countries, for example, Italy, there are ongoing efforts to relaunch and evolve to next generation the local schemes t his is what is happening at the moment with Bancomat. And I'm sure that the experience that we can capture from the Nordics will be incredibly useful.
Don't also forget that there is this European Payments Initiative, EPI, where a group of banks, European banks are attempting to think through on the creation and prepare for the potential creation of a European debit scheme. I think there are still issues that to be addressed in terms of understanding the plan and creating clarity around the plan, but clearly, you know, given the capabilities that the new group will have, will be a key potential future partner for that initiative as well.
On Germany, we heard this a few times i don't know exactly who is pushing this point around, but the reality is that compare this in Germany as a predominantly direct-to-market business, and therefore is not dependent on individual banks. I think that I was saying is probably 1%-
Yeah
... in this relationship. So it sounds a little bit of a strange point that is pushed around. I let Bernardo comment on net income.
Yeah, James, just, I mean, rather than net income, which we are building, given the M&A that Nets has gone through, and we'll have it for the EGM, the pro forma numbers, which are audited, etc i can just comment on maybe on DNA that you were interested in. So DNA is expected to be in the region of EUR 250 million this year. So that's the only number I'm comfortable sharing with you at this stage.
You can't say anything on tax rate at this point?
No.
Okay, just to clarify-
As you know, I mean, we've been, you know, Nets has been through a huge transformation in both businesses, which haven't even closed yet this year, in various geographies. So we need to really wait until we have the full set of numbers to be able to comment on all that.
Okay. Okay, thank you.
Thanks.
The next question is from Charles Brennan with Credit Suisse. Please go ahead.
Greg, good morning, and congratulations. Just two questions from me. Can I start with one on the competition authority and the implications for SIA? You've always implied that the EU would be sympathetic to high market shares in Italy, because market shares were seen in a European context, not just a Italy-only context.
Does this transaction with Nets in any way change that landscape, and do you anticipate the regulatory hurdles getting tougher for SIA? And then secondly, just as a broader observation, I think that investors tend to respond to beat and raise type stories. You've given us some very granular expectations on revenues, cost synergies, and CapEx synergies. I'm just wondering, where do you think you're being conservative that should surprise investors on the upside going forwards? Thank you.
Good morning, Charles. Well, let me frame appropriately the issue around competition authority, because I don't believe I said that they're gonna be sympathetic or something like that. Let's look at the reality. First of all, these two are independent, and we expect them to be seen as independent, number one. Number two, when it comes to SIA, what we said is that our analysis and all the work we've done with the best possible advisors, so on and so forth, basically suggest the fact that the competition authority, we look at this not as one market, but as many vertical markets.
There are about already twenty markets in digital payments, not geographical, I mean, vertical in terms of content, you know, and when you start looking at these vertical markets, then, the potential overlaps or higher market shares become really, really marginal, and by the way, on specific markets, which are seen more and more as European markets, so that is as far as the DG Comp is concerned, and we'll start the conversations with the competition authorities shortly, and we'll take it from there.
When it comes to Nets, the key element is that, regardless the fact that, you look at it as European or Nazionale, if you look it as Nazionale, there is zero geographical overlap on Italy, okay? Then there might be a couple of smaller southern, central, southern European markets, where both companies are doing a little bit, but very low market shares in any case s o if you take the national angle.
There is zero overlap, no? If you instead take the broader angle, the reality is that the digital payments market is so broad in Europe, with so many players in it, from banks to specialists to vertical segment specialists, and so on and so forth.
Then at the end of the day, the market shares remain very low s o even if you combine the three companies, the broader pan-European market share in verticals, that they may be considered to be as European, already remains very low.
On the revenues and cost synergies, listen, to be honest, to be honest with you, is difficult to say because we're being super focused, you know, in crafting a plan where we know what we can deliver. I think it very much will depends also on the evolution of the market, but I think that in general, scale brings more operating leverage, and at the end of the day, it gives you the possibility to build also a stronger portfolio of products and competencies.
So on much of these, now we'll be able to see over the beyond the three to five years is something that is still to be understood. At the same time, there are things that we didn't factor in, because we didn't want to stretch it too much. I'll give you a very simple example, where pay later solutions in e-commerce for e-commerce in Germany is a very attractive product, but we didn't want to stretch it too early as something that can be replicated elsewhere as well.
Perfect. Thank you.
The next question is from Stéphane Houri with ODDO BHF. Please go ahead.
Yes, good morning. I have two questions, actually. With the changes you are doing now to the group, a much wider group, much more internationalized and diversified, what would you say, in the future is going to be your targeted growth for revenues? You used to say 5%-7% for next year alone. So what is your vision for the whole group when you will have achieved the SIA and the Nets merger?
The second question is, now that you really have, or you're going to have a really different size and profile, do you think you'll be able, or is it your target to compete with players like Worldline for outsourcing contracts from European banks? Thank you.
Thank you, Stefan. Well, so on target growth, I mean, our guidance that was out there, but is obviously in our mind and underlying in our plans, that 5-10%, that 5%-7%, now we believe this deal is actually something that will not dilute our growth s o we continue to think the combination of the companies being a mid-high single digit, and later on we will provide as we go forward a new guidance for the new group, but we definitely don't expect this to be revenue dilutive, it's rather the opposite.
Second, on banks, we work with banks every other day i t's our bread and butter, as actually in Italy is, by the way, the bread and butter of SIA already, not only in Italy, but around Europe, Germany, France, Canada, Benelux, and so on and so forth, is the bread and butter of Nets in the Nordics. And as I said before, they're already starting to win several deals in that space beyond the Nordics, and they're active on around thirty opportunities. So yes, there's gonna be a space where we'll be more and more active, and we'll be and we'll be competing.
Thank you very much.
The next question is from Paul Kratz, with Jefferies. Please go ahead.
Hi, good morning, everyone. Couple questions from my end. I think on page 31 of the presentation, you made a mention about long-term integration synergies. Could you? maybe elaborate on where this would come from? And maybe once the deal is done, should we maybe expect more clarity around the second phase of synergies that might arise from this bucket of savings? And maybe following up on that topic, you mentioned that you'll be rolling out your co-issuing model in the Nordics.
I mean, do you see this as a measure that could stem some of the pricing pressure in the market? And maybe what's the opportunity to roll out this co-issuing model in Central and Eastern Europe and maybe Southeastern Europe, where some of the markets are maybe less mature and don't have a domestic debit scheme? I have one other follow-up after those two.
Good morning, Paul. Listen, I think I did try to answer to this question a few moments ago on these longer term synergies a t the end of the day, the numbers we are putting in, we're not yet assuming a deeply integrated group, because these things happen over time. These things happen over time, and that's probably one element on the cost side.
At the same time, on the revenue side, I'm sure we'll continue to discover newer and newer things that these companies are doing, and that can generate value across the board. I think we discussed a few moments ago the value, the potential value of the experience and the capability of Nets in managing domestic schemes.
That's not a synergy that is in our plan at the moment, no, but that's something that definitely we may capture at some point. If I may make a broader comment, because around combining companies internationally and so on and so forth, personally, I spent seventeen years in telecommunication, and all of them at Vodafone i t's a company that started a little bit similar way, and then, through the years, the aggregation did start to take shape, and over time it became a group, an integrated group.
And the reality is that, now the synergies of becoming one company will continue to come out, did continue to come out, in that case, over the years. So it was a never-ending story with always new opportunities, both on the cost side and, on the revenue side as well. On the Nordics, I think, more in general, I think, Bernardo gave it as a, as an example. I think there is a broader point, which is the following: in general, the issuing business, it's been historically a little bit about, if I may say it, a less exciting, business, because it's always been seen as an issuer a processor business type of thing, okay?
And that's the situation in the majority of the situation, no? Our experience is such that you can create a lot more value for the banks, no? And if you start helping them more on product development, value-added services development, potentially upselling, cross-selling of their customer base, which is exactly what we do in Italy.
But the good thing is that this is also something that Nets is working themselves to start doing more and more in their geographies. And our view is that, overall, there will be more the possibility to do this going forward, in our industry in Europe, on the back of our relationship, on the back of the relationship of Nets, on the back of the relationships of SIA, on the back of the new relationships that we can build.
Because the reality is that, as technology becomes more complex, as compliance becomes more complex, as scheme rules become more complex, and with mandates and everything else, now we remain convinced that, there is more and more value that we can deliver to the banks to add them to this complexity.
They will remain owners of the customers, owning of the branded experience and all of that, but there is more and more value we can create for them, and this is true across the board. I think here, the experience we are doing in Italy will be for the rest of the geographies as well.
And maybe just kind of one follow-up on the inorganic front. You know, we're obviously aware that Mercury is, or was, or still is, I guess, the proprietary processing platform of Intesa in Southeastern Europe. I mean, to what extent do you see that as a springboard for maybe extending your relationship with Intesa, in that part of the world? And I guess any other comments with respect to UniCredit and SIA.
No, listen. I think here we already have a lot to talk about M&A-wise, on what is on the table right now. But that's definitely a conversation that may make sense, given the relationship we have with Intesa, given what we've been doing in Italy.
And this is the type of thing that we have in mind when we say in market bolt-ons , merchant books, and so on and so forth. To be honest with you, on Italy, I really cannot comment because they are mainly a customer of SIA, and so far they've been going in a different direction in terms of strategy as far as merchant services are concerned s o I really cannot comment, but on Intesa, that's a good example.
The next question is from Sébastien Sztabowicz with Kepler Cheuvreux. Please go ahead.
Yeah. Hi, everyone, and thanks for the question. Could you please help us understand a little bit the sales growth and margin profile of Nets on a standalone basis that you see for the coming years? They are generating today around 36% EBITDA margin.
Basically, where do you see the EBITDA margin of Nets on a standalone basis moving the next couple of years? Where do you see the leverage on the standalone basis? And specifically on Nets' online payment business, is it mostly domestic e-commerce, or they have an exposure to cross-border e-commerce? And then ultimately, do you plan to push or develop a cross-border e-commerce capability going forward? Thank you.
Good morning, Sébastien. On Nets, without getting into the details of the underlying plans that we are using, that are obviously adjusted versus what the company had already in mind, so on and so forth. I mean, as you've seen, it's already happening in 2020. It has happened in 2021—in 2019, but it's also happening in 2020 i think the Q3 results are very visible.
The company is working hard on the two fronts, on revenue growth, both in merchant services and in issuing where, again, I repeat, especially in the Nordics, a lot of, you know, the price pressure has been already taken, and therefore, now you see more of the organic development of the business but also on the cost front.
W ith a new operating model and many other things that they're doing, so they're investing heavily on the future, for example, on technology, Salesforce, competencies, e-commerce, and so on and so forth, but at the same time, they're doing what we are also doing, and we've done, which is generating efficiencies everywhere possible.
So yes, in the standalone plan, there is the expectation to expand the margin over the next two to three years, but actually short-term and medium-term, as well, not just long-term. On online, yes, they've already started to serve merchants beyond the individual geographies i f you look at the portfolio, I think it is also a little telling because half of the commerce portfolio is already coming from Germany, with the other geographies being at the Nordics and Poland.
I want to be clear, I said it, if you look at our fast track joint initiative, that's gonna be the first one, because, again, I think what we can do together in e-commerce is just at the beginning. Nets is growing a good 20% plus, Nexi, besides COVID, has been growing a good 20% plus, so around 20%, so I think, there's a lot more we'll be doing together in this space.
Okay, thank you. Just to come back on Nets specifically, I think they had an organic target to have margins in the high 40s and organic growth in the high single digits. Is this something that you have backed with your due diligence? Standalone? Thank you.
No, but I think it's impossible to have a kind of a theoretical target for EBITDA margins, and so on and so forth, without looking at the reality of the different businesses and markets. If you ask yourself why we have different margins than Nets and Nexi, it has to do with a few things that are relevant, and by the way, that will not necessarily change because some of them are structural l et me just name two or three, because I think they're important.
Number one, Nets is in acquiring, basically mainly direct to market distribution model, while we have more into partnerships with banks s we discussed in the past, therefore, the way you account for revenues is such that you cannot really compare like for like, because the commercial costs of Nets are below revenues, and therefore, into cost.
The commercial cost of Nexi, the vast majority of them are taken out before revenues, and therefore, they don't impact the cost line, you know? If you just adjust like for like, our EBITDA margin would be already a good five plus percentage points lower or versus higher, depending on how you adjust t hat's one example. A second example, as you said before, in issuing, we're working on higher value issuing or co-issuing models.
And this is something that, again, as we said, we try to explore, but then it's in the end a market issue, and it also depends on the banks. And the last point is that we have a very, very large scale in one single market, which allows us to enjoy the benefits of scale already at the national level, and this is something that structurally Nets doesn't have the same level. So, to be clear, Nets stand alone, and the margin will grow. It's in their plans, it's in our plans, and they will deliver it, but I don't believe we should have a benchmark, a personal benchmark against Nexi, from this standpoint.
No, no, same, same. Yeah, I mean, from the due diligence point, we, you know, we when we normalize the Nets numbers to give you the historic growth, this is where the due diligence was focused on s o understanding why we should take out certain why we should normalize for certain pricing aspects of the past and issuing, why we should normalize for certain clients losses in the past, and this is all to do with Nets' history. And if you look at Q3 numbers, they're already at 40%, and we expect them, as Paolo was saying, to continue to grow.
Thanks a lot.
The next question is from Ivan Babajev, with the SCIO Capital. Please go ahead.
Hi there, thank you very much for taking my call. My question is right around the future e-commerce strategy you have. Given the increasing exposure to e-commerce, you know, how do you plan to compete against some of the industry leaders within that space, some of which are in Europe? And what do you see as your biggest differentiator versus some of those competitors? Many thanks.
Good morning, Ivan. Listen, I don't believe that you necessarily need to compete with the global e-commerce merchants that do not at the end of the day represent in many geographies a smaller segment. Here, having a strong e-commerce proposition allows you to win with the local merchant, which is, for example, something that we do a lot in Italy and Nets in their own single market.
So that's number one, and we'll be able to invest more and more, and we'll be leveraging on what Nets already has to win more and more in markets to begin with. Second, you start to have a cross-border or regional e-commerce merchants, and that's definitely something that we'll be investing on, and Nets already has some merchants in that space.
Third, there are more value-added services you can deliver, you know, in the space of e-commerce I think of the example of alternative payment methods, such as account to account or pay later solution is a clear source of extra value for Nets today and potentially for our group tomorrow a nd last but not least, we always have also the e-commerce component of the multi-channel acquiring, where there's always a combination of local, regional, and global merchants as well.
We believe we'll be able to accelerate together in e-commerce without necessarily believing we'll be winning with the two or three global players that are serving merchants in all continents. And that's gonna be our space. That's gonna be our space.
Great. Thank you.
The next question is from Alexandre Faure with Exane BNP Paribas. Please go ahead.
Hi, good morning. Thanks for letting me on. I had yeah, perhaps three questions, if I may. One is on the Nets standalone margin discussion you had. Just trying to understand if the Nets standalone plan factors in any synergies from the Concardis integration and, you know, how long that's gonna run, where does that take you? Is it 2023, the end of the integration with Concardis?
And my second question is looking at the issuing division of Nets i think you mentioned that 70% of revenues are due for renewal after 2023? Is it a big cliff in 2023, 2024? Reason I'm asking is that I think this is when the Nordics banks sold it to Advent and Bain the first time, so perhaps there was some renegotiation ten years ago in 2013, 2014, and lastly, could you give us any sense if you've got special incentives both you and the Nets management team that would be purely tied to the success of the integration? Thank you very much.
Good morning, Alexandre. Let me take your questions. Yes, the Nets standalone plan also includes the synergies from Concardis, or at least the ones that they could deliver by themselves. There are further synergies in merchant services, more in general, that we will deliver together, but the ones from Concardis are not all in the plan, but already are in the facts.
I think some of the acceleration that we see in merchant services and the company with more in general is also coming from the synergies. I think on this point around the issuing business and the contracts in the Nordics, I think here we have to be a bit careful because it's normal for our business to have contracts that normally expire over time t hey normally last anywhere from three to seven years or sometimes ten. It's very unusual to have them as long term as we have, in our case, in a couple of cases, in Italy.
And therefore, it's absolutely normal that, over time, these contracts have to be renegotiated, adjusted, renewed hopefully, and new contracts are won, contracts are lost, and so on t hat's normal dynamic, okay? The issue becomes a bit more complicated when we are in a situation where, like, the one of Nets, they had, in, basically 2018, 2019, the majority of their issuing contracts, that were expiring more or less at the same time from the selling banks, no?
And some of them were probably not properly priced, and that work has been done, okay? Has been done. And now you go into a more normal life, where you have contracts that expire any day from 2022 to 2026, and they will be again renewed, probably again with discounts, and most of them will be renewed s ome of them may be competed by someone else, but we will win somewhere else. So we go back into normal life, no? And the experience I think for anybody in this industry is that this is a business, this is a growth business.
No? Again, I, despite all this contract renegotiation and so on and so forth, because volume, underlying volumes are growing and because there is more and more technology and product that you can put into it. As far as management is concerned, let me start with myself, but I have a good team in myself, Bernardo, the top team from Italy.
No, we don't have anything specific on this, but the good news is that we are quite important for our personal, well, at least shareholders of our company, and therefore, we are exactly in the same shoes of our investors and therefore we will benefit from the valuation that we are committed to deliver for our shareholders to begin with, so we are exactly in the same positions.
As far as the Nexi management is concerned, again, the Nexi management on the back of their own previous plans will become shareholder. Again, in relative terms to their personal worth, important shareholder of Nexi of the new Nexi o ver time, they have also a certain lockups, and so on, so forth a nd therefore, the entire, now, new management will be fully focused and aligned in the value creation long term for the total new group. And I think this is simply great and in the best interest of our shareholders.
Then more specifically for Nexi, the company is also putting together something even more specific on the delivery of the next couple of years for the next standalone plan. That at the end, as I said, can be an incredible source of further value creation for the total group going forward.
That's very clear. Thank you.
Mr. Bertoluzzo, there are no more questions registered at this time.
Listen, thank you. Thank you for attending this call. It has been a long call, but I think it is absolutely normal, given the relevance of what we've been announcing today l et me just close, reiterating the three key messages for us today. Number one, we firmly believe we are creating a much stronger Nexi, as a combination of more growth potential and more resilience. Message number two, Nexi is a growth company, as you understood, very different from the one that you may remember back from 2017, 2018. Growing company with more growth in front of it.
And last but not least, we are 100% committed to execute, you know, these transactions, to execute the synergy plans on the back of them, and we will do it thanks to a plan that is phased with trade-offs, obviously, but phased and clear. We'll be led by a strong leadership team, and in the meantime, given the breadth and depth of people, talent, and seniority we have within the companies, we will also continue to deliver on our standalone plans to continue to grow the group overall. With that, thank you so much, and we're looking forward to talking to many of you, I believe, over the next hours and days. Thank you.