Charles Freund, EVP of Strategy at FLEETCOR
What was the key to the most successful IPOs of the 2010s? The likes of Tesla, Inc. and Shopify Inc. introduced technologies that transformed their industries. Another IPO from an innovative company that delivered some of the best returns of the decade: business payments firm FleetCor Technologies, Inc., whose shares have soared over 1100% since listing in 2010.
In a wide-ranging interview with IPO Edge, Charles Freund, EVP of Strategy at FLEETCOR, explained how the company transformed from a regional fuel card business to a global payments powerhouse. The company has grown through a combination accretive acquisitions and organic expansion into new categories in dozens of countries. Looking ahead, Mr. Freund explains how the company can continue to grow both in fuel cards and other categories around the world. The full interview is below:
IPO Edge: Can you describe FLEETCOR’s core business today, and how that has changed since the company’s 2010 IPO?
Mr. Freund: FLEETCOR began as a regional fuel card company on the brink of bankruptcy with just $30 million in annual revenue. It was a sizable challenge, but FLEETCOR eventually grew to become a consistently profitable company with a global presence, eventually expanding into all aspects of business payments, including payables, lodging, tolls and gift. In 2010, FLEETCOR went public at $23 a share and is now trading at over 12X that price.
As of Q1 2020, FLEETCOR is now a $25 billion business payments company providing better ways for companies of all sizes across over 80 countries to digitally manage and control their expenses, offering newfound efficiency gains and visibility. We serve over 800,000 business customers and merchants respectively, and process over 2.0 billion transactions a year. Demonstrating not only our growth, but also our transformation into a broader business payments company, today nearly 60 percent of FLEETCOR’s revenue is outside of our legacy fuel card business.
IPO Edge: At a high level, what creates demand for fleet cards that traditional cards can’t provide?
Mr. Freund: Fleet cards offer several advantages for fleet operators and their drivers that traditional cards cannot. Firstly, they provide enhanced controls, which is critical to operators. Traditional payment methods lack any real form of spending controls, leaving businesses more susceptible to unauthorized purchases, which eventually come out of their pockets and create unwanted administrative headaches. FLEETCOR’s portfolio of fuel cards and digital payment methods give business operators visibility into and control of their employee’s expenses through reporting, authorization controls and exception alerts on control parameters. With greater control over their expenses, fleet operators can reduce unauthorized purchases and better manage their expenses, often saving 10 – 15 percent of total expenses.
Fuel and fleet cards also provide a significant convenience factor – not only for fleet operators, but for their drivers. Most drivers are responsible for not only driving the vehicles, but for refueling and completing maintenance tasks. What’s more, they’re on the road for hours – if not days – and may need to purchase lodging. Our portfolio of cards enable drivers to make purchases across categories seamlessly as well as gain access to a deeply discounted hotel network. Having just one card for these expenses allows for comprehensive tracking and consolidated reporting, also saving their managers a substantial amount of administrative time.
Perhaps most importantly, fuel cards lead to significant cost savings for fleets. Through FLEETCOR’s digital tracking capabilities, operators are able to reduce costs related to theft and fraud. Businesses can also mine and use the data collected via the fleet cards to create even more efficiencies within their business, ultimately resulting in added cost savings.
IPO Edge: Much of FLEETCOR’s growth over the last decade was driven by M&A. Can you explain why the opportunity was so great and if it remains so going forward?
Mr. Freund: Since its founding, FLEETCOR has completed over 80 acquisitions, delivering superior returns to our shareholders. Acquiring businesses that complement our own has played a leading role in driving our growth over the past decade. That’s become especially true as we’ve evolved outside of fuel cards and into the broader corporate payments landscape. We take a very strategic approach when evaluating potential acquisition targets.
First and foremost, we stick to what we know which is of course, B2B payments. Within the marketplace, technology is a vital component, so we’re seeking companies who have similar business models and untapped capabilities to help us serve our existing set of customers even more effectively. Most importantly, we focus on what companies could be, not necessarily what they are currently. That being said, we won’t acquire a company unless we have a clear strategy for how we will double the profits in three to four years.
From the B2B payments perspective, the M&A pipeline continues to remain active, given the sheer size and growth of the market.
IPO Edge: How are you driving organic growth? Can you share some examples of how FLEETCOR has demonstrated its ability to grow beyond fuel cards?
Mr. Freund: FLEETCOR continues to pilot new payment solutions that ‘Go Beyond’ our core offerings, helping to drive our organic growth. Our ‘Beyond Fuel’ refers to our efforts to provide our existing clients with the opportunity to spend more with us and expand the network in which they can make purchases.
Over the past two years we’ve enabled new spend categories outside of fuel through our Comdata Mastercard portfolio. The portfolio offers expanded purchase capabilities, addressing the many needs of small businesses with employees who need to make payments for non-fuel expenses, such as food, maintenance or construction supplies – all on the same card. This is significant for both the drivers, who are able to spend more freely, and their managers who are equipped to more seamlessly control and expense reporting beyond fuel.
In addition, initiatives amongst our subsidiaries are going ‘Beyond Fuel’ with new payments-related services. In Brazil, for example, FLEETCOR-owned Sem Parar provides RFID tags with contactless payments capabilities to speed drivers through gas stations, as well as parking garages and tolls. Going even further ‘Beyond Tolls,’ Sem Parar has expanded into the fast-food payments space through an agreement with McDonald’s to install the tags in hundreds of Brazilian restaurant locations. Through the partnership, Sem Parar is accepted at drive-thru windows, enabling customers to easily pay for meals with their voice, making for a convenient user experience.
IPO Edge: What do you expect from corporate payments looking ahead?
Mr. Freund: Businesses today make an estimated $170 trillion in payments annually on supplier- and employer-related expenses, but a majority are still done with inefficient, outdated methods like cash and check. On the horizon, we expect businesses to become more comfortable using digital payments methods, just as consumers have already with platforms like (PayPal Holdings, Inc.’s) Venmo, representing a high growth market. I also predict we’ll see more consolidation in the B2B payments space as a result of this evolving trend. Smaller FinTech players bring desired capabilities and technologies to the marketplace, and are likely to be acquired by bigger players over time to create more efficiencies within the B2B payments marketplace. For FLEETCOR specifically, as we continue looking for businesses that offer complementary services to our existing portfolio, expansion into new markets is something we’re interested in exploring further.
IPO Edge: How are you maximizing cross-sell opportunities across your lines of business?
Mr. Freund: We see great opportunity in maximizing cross-sell opportunities across FLEETCOR. One opportunity in particular is through our subsidiary, Cambridge Global Payments. Acquired in 2017, the addition of Cambridge’s cross border payments capabilities enabled FLEETCOR to pay both domestic and international AP payments for the same client, a significant differentiator in the commercial marketplace. All of Cambridge’s international AP customers also have domestic AP to pay and the acquisition provided a substantial opportunity to cross-sell Comdata’s domestic AP automation and virtual card solutions into Cambridge’s client base.
IPO Edge: What role have payments outside of the US played in your recent growth and do you see the need to expand abroad further to maintain pace?
Mr. Freund: We’re doubling down on innovation globally. We’re expanding in multiple international markets, but have had significant success growing our presence in Brazil and taking advantage of their vast toll network. New partnerships are accelerating our growth in the region and we’re planning for even faster growth of our Beyond Toll segment throughout this year. Most recently for example, Sem Parar established a first-of-its-kind partnership with Nissan. Under the agreement, all new vehicles that Nissan manufactures in Brazil will have our contactless payments solution factory-installed to enable simplified payments for drivers. In addition to all newly manufactured cars, FLEETCOR’s electronic payment stickers will be installed on used vehicles at Nissan dealerships across the region. Customers who activate the feature will be provided access to convenient contactless payments capabilities at all of the company’s network of merchants in Brazil, including all toll booths as well as over 1,300 parking lots, 650 gas stations and 300 drive-thrus.
IPO Edge: Is there a risk of competitors creeping into your space or is there a way to co-exist with them?
Mr. Freund: Given the sheer size of the opportunity in B2B payments, it may be premature to worry about risks related to competition. With supplier payments alone, the marketplace is enormous – an estimated $170 trillion B2B global spend opportunity annually, and we’ve barely scratched the surface. There’s such significant spend volume to manage and the space has yet to start looking crowded.
In terms of the established industry players, there’s certainly a large amount of “coopetition” occurring. For example, a company may be using one vendor for check-writing and wires while using FLEETCOR for their processing. But looking at the big picture, the market will be quite the open field for the foreseeable future. When competition does become a factor in this space, we’ll likely see a lot of consolidation happen. With FLEETCOR sitting on billions of dollars today and a proven M&A approach, we’re confident in our footing and the security of our position in the future of business payments.
Charles Freund is the Executive Vice President, Strategy at FLEETCOR, where he develops overall corporate strategy and oversees delivery on key product, sales and marketing initiatives. He joined FLEETCOR in December 2000 and has held a variety of leadership positions supporting business development, corporate strategy, developing markets, global sales and more. Prior to joining FLEETCOR, Charles was a consultant with Sibson Consulting and received his BA in Economics from Rutgers University. FLEETCOR (NYSE: FLT) is a global leader in business payments helping companies simplify the way the pay and manage their expenses.
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