Stone buys Linx for ~US$1.1 billion. If who controls the hardware controls the world, will regulators allow it?

Contxto – In a 90 percent cash, 10 percent equity deal, Brazilian Stone is allegedly acquiring Linx, a software company also from Brazil.

Last Tuesday (12), a statement made by Linx confirmed that it was “in final talks” with Stone, which reaffirms their intentions for the transaction to go through.

Nevertheless, it isn’t a done deal yet. They still have to go through Linx stakeholders’ and antitrust regulatory approval. You know, the fun part!

Ink on the dotted line

Stone—a Berkshire Hathaway-backed payment processing company—signed a definitive agreement to go ahead with the transaction, as reported by Bloomberg. 

Allegedly, the transaction is worth R$6.04 billion (~US$1.1 billion), which means the cost of the operation represents a 30 percent premium over Linx’s Monday closing price. A 42 percent increase in its volume-weighted average price for the past two months. 

After the announcement, Stone’s stocks surged 17 percent on the NYSE. Meanwhile, Linx—a São Paulo publicly-traded company—increased its stock price by 36 percent. 

Interestingly enough, Stone started exploring the CRM (Customer Relationship Management) space and other services to their existing clients, as Linx ventured into the payments world for their retail clients. Linx Pay launched in 2018. 

So, it isn’t difficult to see the reasoning behind the operation. 

Stone’s shopping list

In fact, according to Brazil Journal, Stone had been eyeing merging with TOTVS, due to their ERP, CRM, and supply chain management systems. Nevertheless, Linx made more sense because of its consumer-based approach.

The combination of hardware and software, as well as two complementary products, brings StoneCo into a new level of omnichannel presence and competence. It is for this same reason that antitrust regulators could see a potential flaw if the transaction reached completion. 

Not only will they be able to enrich their customer acquisition strategies from both ends, but by being vertically integrated, their capacity to increase retention could be vastly improved, as well. As Themistocles is well-known for saying:

 It’ll be interesting to see StoneCo—which not only is strong in the payments game but which recently enabled lending to their customers—fiercely compete for market share with other players in the region. Yes, I am talking about Mercado Libre, or Livre, I should say.

Mercado Pago’s strong bet on PoS-less payments, compared to Stone’s physical terminal will be an interesting battle to watch.  

Buffett’s Berkshire Hathaway and Jack Ma back the company are some of the most renowned stockholders of the company.

-VC