Written by Brenda Nakalema

The MoneyGram situation a win for block and other fintech disruptors.

Moneygram International, the payment service company, is being acquired by a private equity player, sending its stock on a high. …

Moneygram International, the payment service company, is being acquired by a private equity player, sending its stock on a high. The real story, though, isn’t about the actual acquisition but the technology orchestrated by the likes of block (ticker: SQ) and PayPal (ticker: PYPL).

Moneygram(ticker: MGI) made its acquisition announcement by Madison Dearborn on Tuesday- according to the deal, partners of Madison Dearborn would acquire the company shares at $11 apiece. Moneygram stock ended Monday trading at $8.95 a share.

Premarket trading so the stock gain by 18% to $10.59 is an indicator that investors strongly believe the deal will be closed and that there won’t be a counter bid. S&P 500 and Dow Jones Industrial Average futures gained 1.2% and 0.9%, respectively.

With a deal this important, Moneygram has been valued at $1 billion, 21 times estimated earnings for 2022 of roughly 52 cents a share. Including debt, the deal values the company at $1.8 billion. The purchase price set for this deal is this low because Moneygram is a relatively small business; added to that is the fact that it’s also shrinking. Sales in the company peaked at around $1.6 billion in 2016. On the other hand, sales this year are projected to be $1.3 billion.

Moneygram’s competitor, Western Union (ticker: WU), seems to be following a similar pattern with sales of $5.6 billion in 2016. Before the company agreed to sell a portion of its business to investors, its sales expectations on the street stood at $5.2 billion now; sales expectations were $4.8 billion. Sales of Western Union peaked at $5.6 billion in 2018.

While both companies are still relatively profitable, they appear to be operating in the review mirror of new rivals operating in the payment processing technology space. For example, Block (ticker: SQ) shares were worth $3 billion when the company conducted its IPO in late 2015. At the time, both Moneygram and Western Union were valued at about $10 billion. Square has roughly $64 billion market capitalization while Moneygram and Western Union carry a paltry $9 billion valuation.

The payment technology industry has other high flyers, like PayPal (ticker: PYPL), which owns Venmo, and has a market capitalization of $133 billion. The company was purchased by eBay (ticker: EBAY) in 2002 at $1.5 billion before it was spun off to eBay shareholders in 2015.

The lesson for investors can be derived from Clayton Christensen’s book ‘The Innovator’s Dilemma’, which explains how hard it is for existing industry players to adopt the latest technology, especially if the company currently enjoys a profitable business.

The dilemma is alive today, not just for Moneygram and Western Union but also for traditional banks that compete with the likes of PayPal and others, as well as car companies, the likes of General Motors (ticker: GM), Ford Motor (ticker: FM) that are in competition with Tesla (ticker: TSLA).