Paysafe plc just accepted a takeover offer. Is this stock next?

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Paysafe

Digital payments companies have enjoyed rapid growth in recent years, as consumers have switched from paying for purchases with cash, to paying online or by smartphone. As a result, it's no surprise that we have seen consolidation within the digital payments sector this year.

Paysafe Group(LSE: PAYS), which assists businesses and consumers connect and transact seamlessly through its payment processing capabilities, recording a combined transactional volume of $48bn in 2016, is one such company that has recently received a recent takeover offer.

Shares in Paysafe surged in late July, as it received a conditional, all-cash takeover offer from private equity groups Blackstone and CVC Capital Partners at 590p per share. And on Friday, the board "unanimously" recommended the bid by the private equity consortium, stating that an agreement had been reached on the terms of the offer. The deal values Paysafe at £2.9bn, representing a near 60% increase on the company's market capitalisation at the beginning of 2017.

Looking at the half-yearly report released this morning, it's not hard to see why the private equity groups wanted to get their hands on it. Revenue for the half-year increased 11% to $538.7m and adjusted EBITDA rose 17% to $169.2m. Meanwhile, adjusted fully diluted earnings per share surged an impressive 25% to 25 cents.

However, in my opinion, it is a shame that Paysafe will be taken private. Fast-growing technology companies can generate amazing long-term returns for shareholders, but with the firm being taken private, it means one less opportunity in the sector for private investors to profit from.

Is this stock a takeover candidate?

Another area that could potentially see consolidation is the defence sector, and one stock that has been touted as a potential takeover target in the past is Ultra Electronics Holdings(LSE: ULE).

The £1.6bn market cap company develops technologies for the defence, aerospace, security, cyber, transport and energy markets, generating around 85% of its revenues from defence and security. With US President Trump planning to spend significantly on defence this year, Ultra Electronics looks well-placed to capitalise.

The company released a fairly lacklustre set of half-year results yesterday that saw revenue down 0.1% to £366.4m and underlying earnings per share up just 0.3% to 58.3p. However, it did say that 2017 will be more heavily weighted to the second half than normal.

The share price has pulled back as a result, and has now declined almost 10% since the beginning of the month. At the current price of 1,953p, the stock now trades on a forward-looking P/E ratio of 14.3, which looks reasonable value for a niche player that is forecast to generate a 5% rise in revenue this year. A forecast dividend yield of 2.5%, covered 2.7 times, also looks attractive.

Given that global political tension is unlikely to dissipate any time soon, in my view the defence sector could offer some attractive returns in coming years, and Ultra Electronics looks to offer potential from both a capital growth and dividend investing perspective.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Ultra Electronics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.