M&A Due Diligence for a Payments Fraud & Chargeback Protection Company


The Challenge

How can private equity investors identify and understand the right targets in a highly competitive and rapidly evolving market?

One of the world’s leading private equity firms was evaluating the prospective acquisition of an eCommerce payments fraud prevention and risk solutions platform. The company had established demonstrable market share by utilizing Artificial Intelligence (AI), big data analytics, and machine learning techniques to provide retailers risk assurance and chargeback protection in their customer checkout flows. To facilitate the due diligence process, the private equity deal team engaged Liminal to provide an in-depth understanding of the fraud prevention and risk management market, benchmarking of competitively positioned products and solutions, and potential white-space opportunities for growth. As part of the engagement, Liminal collaborated closely with the deal team to generate a potential investment thesis, assess market trends for potential risks, establish competitive performance across core use cases, and model the market opportunity, including potential exit opportunities, for their target.

The Action

Over the course of the engagement, Liminal collaborated with the private equity team on:

  • Market Due Diligence
  • Operational Due Diligence
Market Due Diligence

As the market for fraud and risk management solutions grows, with a CAGR of ~20% by 2023*, point solutions are being replaced by next-generation technologies that offer broader capabilities including behavioral biometrics, mobile device intelligence, chargeback protections, and real-time fraud decisioning based on proprietary risk signals. In the initial phase, our team provided a detailed assessment of current market dynamics including the liabilities incurred by payment service providers (PSPs), card networks, and mobile pay solutions. To demonstrate demand forecasts for fraud prevention and chargeback management, Liminal explored the size and current penetration rates of the fraud market broken out by both industry verticals and geographies for both risk scoring and liability shift for credit card chargeback fraud. 

Leveraging the Liminal Expert Network, an experienced and dedicated team of advisors and industry leaders, our team analyzed the introduction of integrated digital identity services by institutional market players and the future impact of emerging regulations. To demonstrate the efficacy of notable competing service providers and the impact of forecasted market trends on the risk management space, Liminal built our client team a customizable market model with the ability to stress-test various growth scenarios.

Operational Due Diligence

Protecting against fraud requires consideration for techniques that involve not only third-party malicious actors, but a growing number of “friendly fraud” techniques. To establish the target’s performance in both liability shifts for credit card chargeback fraud and risk scoring, the Liminal team also conducted Voice of the Customer interviews to target customer value pools, measure user sentiment and evaluate addressable product gaps. 

To couple user sentiment analysis, the Liminal team also assessed the target company’s business model, cost drivers, internal and external risk factors, and organizational capabilities to scale product solutions vertically, horizontally, and into new geographies. To demonstrate white-space opportunities for growth, Liminal recommended additional data sources and product features to augment the target’s ability to service geographic-specific use cases. 

The Outcome

As a result of Liminal’s market and operational due diligence, the team was able to provide our client with strategic guidance on the target’s acquisition potential. Liminal augmented its findings with opportunities for the target to expand its capabilities to additional use cases across the consumer purchase journey, recommendations for both inorganic and organic growth, and an assessment of strategic acquirers across issuing banks, merchant acquirers, payment gateways, and eCommerce platforms. As a result of the engagement, our client placed a competitive bid for acquisition.

* Please note that Liminal calculates projections based on the specifics of each engagement, which may not be representative of the market at large.

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