PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
March 25, 2025
FROM: Howard Bellamy, Specialist Partner, Antitrust & Competition, Calderwood & Harkness LLP
TO: Sandra Tung, Responsible Partner, M&A, Calderwood & Harkness LLP Priya Deshmukh, Managing Partner, Fund IV, Harrowgate Capital Management IV LLC Thomas Eriksen, Partner, Head of Financial Technology, Harrowgate Capital Management IV LLC
CC: Megan Chu, Lead Associate, M&A, Calderwood & Harkness LLP Derek Okonkwo, Working Associate, M&A, Calderwood & Harkness LLP
RE: HSR Premerger Notification Filing Strategy — Acquisition of VeloPay Systems, Inc. by Harrowgate Private Equity Fund IV LP
Matter Number: 1003-00003
This memorandum has been prepared post-signing in anticipation of the HSR premerger notification filing. Filing target date: April 2, 2025. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine, and is intended solely for the use of the addressees and individuals identified in the distribution above. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
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I. Executive Summary
This memorandum sets forth our analysis and recommended strategy for the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") premerger notification filing in connection with Harrowgate Private Equity Fund IV LP's ("HPE Fund IV") proposed acquisition of VeloPay Systems, Inc. ("VeloPay" or the "Company") for an aggregate merger consideration of $1,900,000,000 (the "Transaction"). The purpose of this memorandum is to provide a comprehensive assessment of the reportability of the Transaction, the substantive antitrust risk profile, and the procedural strategy to obtain HSR clearance as expeditiously as possible.
Transaction Structure. The Transaction is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law. Harrowgate Velocity Merger Sub Inc. ("Merger Sub"), a newly formed Delaware corporation and wholly owned subsidiary of HPE Fund IV, will merge with and into VeloPay, with VeloPay surviving as a wholly owned subsidiary of HPE Fund IV. The aggregate merger consideration of $1,900,000,000 represents $20.00 per share on a fully diluted basis across approximately 95,000,000 fully diluted shares. The Merger Agreement was signed on March 18, 2025.
Filing Posture. The HSR notification will be submitted on behalf of HPE Fund IV as the acquiring person. VeloPay will file its own notification form separately, with preparation being coordinated by VeloPay's regulatory counsel, Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes, partner, and James Okoro, associate) and Fielding McGrath LLP (Amara Osei, partner), which serves as VeloPay's dedicated antitrust counsel. Both notifications are targeted for simultaneous filing on April 2, 2025.
Filing Fee. Based on the $1,900,000,000 transaction value, the filing fee is expected to fall within the highest applicable tier under the 2025 fee schedule as adjusted annually by the FTC. The exact fee amount will be confirmed upon finalization of the filing form, and we anticipate the fee will be approximately $280,000 based on recent adjustments.
Substantive Risk Assessment. Based on our analysis, the Transaction is reportable and meets the applicable size-of-transaction and size-of-person thresholds. The substantive antitrust risk is assessed as low to moderate. There is no meaningful horizontal overlap between VeloPay and HPE Fund IV's existing portfolio companies in the core payment processing product markets. Potential vertical considerations arising from HPE Fund IV's other financial technology investments are limited and do not give rise to credible foreclosure concerns. VeloPay competes in a highly fragmented market, and its market share by any reasonable measure is well below the levels that would ordinarily trigger enforcement action.
Second Request Risk. Although the substantive antitrust risk is low, the risk of a Second Request is present and estimated at approximately 20–30%. The factors that could attract additional scrutiny include the overall size of the Transaction ($1.9 billion), the Department of Justice's general interest in the fintech and payments sectors, and the potential for questions about HPE Fund IV's broader investment strategy in payments and financial infrastructure. We believe this risk is manageable and can be materially reduced through a proactive filing strategy, including the submission of a voluntary narrative (white paper) with the initial filing that provides reviewing staff attorneys with a clear and compelling competitive story.
Recommended Approach. We recommend a standard filing accompanied by a robust voluntary narrative to minimize the likelihood of a Second Request and facilitate either early termination of the waiting period or expiration of the initial 30-day waiting period without further action. This memorandum details the specific filing preparation steps, document collection and review strategy, coordination protocols with VeloPay's counsel, and contingency planning for a potential Second Request.
The HSR Transaction Number will be assigned upon filing. For administrative tracking purposes, this Transaction has been subsequently assigned HSR Transaction Number 25-0198374.
II. Transaction Overview
A. Parties to the Filing
The parties to the HSR filing are as follows:
Acquiring Person: Harrowgate Private Equity Fund IV LP
• Entity Name: Harrowgate Private Equity Fund IV LP
• Jurisdiction: Delaware limited partnership
• EIN: 87-4231956
• Principal Office: 300 King Street, Suite 4200, Wilmington, DE 19801
• Fund Size: $6.8 billion (vintage 2022)
• General Partner: Harrowgate Capital Management IV LLC
Ultimate Parent Entity (UPE) of the Acquiring Person: Harrowgate Capital Management IV LLC
• Entity Name: Harrowgate Capital Management IV LLC
• Jurisdiction: Delaware limited liability company
• EIN: 87-4231847
• Principal Office: 300 King Street, Suite 4200, Wilmington, DE 19801
• Role: General Partner of HPE Fund IV
For HSR purposes, the UPE analysis requires a determination of whether any single natural person or entity "controls" Harrowgate Capital Management IV LLC within the meaning of 16 C.F.R. § 801.1(b). Richard Harrowgate, as Founder and Chairman of Harrowgate Capital Management, holds the controlling governance rights over the general partner entity under the applicable limited liability company agreement. Based on our review of the governance documents, Mr. Harrowgate has the power to approve investment decisions above a specified threshold and holds veto authority over the investment committee. Under the FTC's interpretive guidance, Mr. Harrowgate is likely the UPE for purposes of the filing, as he exercises ultimate control over the general partner that manages HPE Fund IV. However, the analysis is not entirely free from ambiguity, as the investment committee operates on a majority vote for investments below the $2 billion threshold. We recommend identifying the UPE as Harrowgate Capital Management IV LLC (the general partner) on the notification form, with a supplemental note regarding Mr. Harrowgate's governance role, and be prepared to address any FTC staff questions on this point during the review process. This approach is consistent with common practice for private equity fund filings and should not present any substantive issues.
Acquired Person: VeloPay Systems, Inc.
• Entity Name: VeloPay Systems, Inc.
• Jurisdiction: Delaware corporation
• EIN: 82-3019478
• Principal Office: 1455 Innovation Parkway, Suite 800, Austin, TX 78759
• FY2024 Revenue: $412.3 million
• FY2024 Total Assets: $689.4 million
Ultimate Parent Entity of the Acquired Person: VeloPay Systems, Inc.
VeloPay Systems, Inc. is its own UPE for HSR purposes. No single shareholder holds more than 50% of VeloPay's outstanding voting securities. The largest single holder is Ridgeline Ventures Fund III LP, which holds approximately 22.4% of VeloPay's outstanding common stock. Accordingly, VeloPay is not "controlled" by any single person or entity under the HSR rules, and VeloPay itself is treated as the UPE. This has been confirmed in our discussions with Fielding McGrath LLP.
B. Transaction Structure and Reportability
The Transaction is structured as a reverse triangular merger in which Merger Sub (Harrowgate Velocity Merger Sub Inc., a newly formed Delaware corporation and wholly owned subsidiary of HPE Fund IV) will merge with and into VeloPay, with VeloPay as the surviving corporation. Upon consummation of the merger, all outstanding shares of VeloPay common stock (other than dissenting shares, shares held by VeloPay as treasury shares, and shares held by HPE Fund IV or its affiliates) will be converted into the right to receive $20.00 per share in cash. VeloPay will survive as a wholly owned subsidiary of HPE Fund IV.
For HSR purposes, this Transaction constitutes an acquisition of voting securities within the meaning of 16 C.F.R. § 801.2. Although the mechanism of the Transaction is a statutory merger, the economic and structural effect is that HPE Fund IV will acquire 100% of the voting securities of VeloPay. Under the FTC's rules and interpretive guidance, a reverse triangular merger is treated as an acquisition of the voting securities of the surviving entity (here, VeloPay) by the acquiring person (here, HPE Fund IV). This characterization is well-established and should not present any reportability questions.
Size-of-Transaction Test. The aggregate merger consideration of $1,900,000,000 far exceeds the applicable size-of-transaction threshold for reportable acquisitions. Under the HSR Act and its implementing regulations, as adjusted annually by the FTC, the 2025 size-of-transaction threshold is $119.5 million (subject to confirmation of the final 2025 adjustment, which was published in the Federal Register in January 2025). Because the transaction value of $1.9 billion exceeds this threshold by a wide margin, the size-of-transaction test is clearly satisfied.
Size-of-Person Test. The size-of-person test is also satisfied. For transactions valued in excess of the higher statutory threshold (currently $478.0 million as adjusted for 2025), the size-of-person test does not apply; the transaction is reportable solely on the basis of the transaction value. Because the $1.9 billion transaction value exceeds this threshold, the filing obligation exists regardless of the size of the parties. Nonetheless, for completeness, we note that HPE Fund IV has a fund size of $6.8 billion (and its UPE, Harrowgate Capital Management IV LLC, controls multiple funds with aggregate assets substantially exceeding $1 billion), and VeloPay has total assets of $689.4 million and annual net revenues (FY2024) of $412.3 million. Both parties independently satisfy the applicable size-of-person thresholds under any applicable scenario.
Conclusion. The Transaction is reportable under the HSR Act, 15 U.S.C. § 18a, and both parties are required to file premerger notification forms with the FTC and the Antitrust Division of the DOJ before consummation. No exemption applies to the Transaction. The filing obligation is clear and unambiguous.
C. Filing Timeline
The key dates in the HSR filing process are as follows:
The initial waiting period under the HSR Act is 30 calendar days from the date both notification forms are filed. Assuming simultaneous filing by HPE Fund IV and VeloPay on April 2, 2025, the initial waiting period will expire at 11:59 p.m. Eastern Time on May 2, 2025, absent an earlier grant of early termination or the issuance of a Second Request.
If a Second Request is issued, the initial waiting period is extended, and a new waiting period of 30 days commences upon the date of substantial compliance by both parties. Based on current practice, substantial compliance with a Second Request typically requires four to eight months from the date of issuance, depending on the scope of the request and the volume of responsive materials. We note, however, that we believe the probability of a Second Request is relatively low (as discussed in greater detail in Section VIII below).
The Merger Agreement's outside date (also referred to as the "drop-dead date") should be reviewed to confirm that it provides sufficient accommodation for a Second Request timeline. We understand from Sandra Tung's team that the outside date is currently set at December 18, 2025 (nine months from signing), with a provision permitting either party to extend by an additional three months if all conditions other than regulatory approvals have been satisfied. This timeline should provide adequate runway for a Second Request scenario, though we recommend confirming this with the M&A team.
We are coordinating the filing preparation with VeloPay's counsel at Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes and James Okoro) and Fielding McGrath LLP (Amara Osei). Both buyer's and seller's HSR notification forms will be filed simultaneously on April 2, 2025. Our office has been in regular communication with Ms. Thornton-Hayes and Ms. Osei regarding the timeline and coordination of the filing process. HSR clearance — that is, the expiration or early termination of all applicable waiting periods under the HSR Act — is a mutual condition to closing under Section 7.1(c) of the Merger Agreement.
III. HPE Fund IV Portfolio and Overlap Analysis
A. HPE Fund IV Investment Strategy and Portfolio
Harrowgate Private Equity Fund IV LP is a $6.8 billion private equity fund (vintage 2022) managed by Harrowgate Capital Management IV LLC. HPE Fund IV's stated investment strategy focuses on growth equity and leveraged buyout investments in three core sectors: (i) financial services technology ("fintech"), (ii) infrastructure software, and (iii) data analytics. Since its formation, HPE Fund IV has completed seven platform investments and twelve add-on acquisitions across these sectors.
Of particular relevance to the HSR analysis, HPE Fund IV currently holds three prior platform investments in the payments and financial infrastructure space:
1. Lumavex Payments Holdings LLC ("ClearBridge")
ClearBridge is a provider of payment facilitation (payfac) technology and compliance infrastructure primarily serving software platforms and marketplaces. ClearBridge's technology enables software companies to embed payments functionality into their platforms by providing the underlying payment facilitation licensing, underwriting, and compliance framework. HPE Fund IV acquired ClearBridge in September 2023 for approximately $430 million. ClearBridge's core customers are independent software vendors (ISVs) and vertical SaaS platforms, and its business is focused on enabling these platforms to become payment facilitators rather than processing payments directly. ClearBridge does not compete directly with VeloPay, as VeloPay operates as a full-stack payments processor and merchant acquirer serving merchants directly, whereas ClearBridge provides the infrastructure layer that enables third-party software platforms to facilitate payments on behalf of their sub-merchants. The two companies operate at different levels of the payments value chain and serve fundamentally different customer segments.
2. Meridian Ledger Technologies Inc. ("Meridian")
Meridian is a provider of real-time ledger and core banking technology to digital banks, neobanks, and fintech companies. Its platform enables these entities to manage customer accounts, process internal fund transfers, and maintain regulatory ledger records. HPE Fund IV acquired Meridian in February 2024 for approximately $295 million. Meridian does not operate in the payments processing or merchant acquiring space. Its technology is focused on core banking infrastructure (account management and ledger systems), which is a separate and distinct market from the payment processing services offered by VeloPay. There is no competitive overlap between Meridian and VeloPay, and the two companies' products are not substitutes for one another from a customer perspective.
3. Pinnacle Risk Analytics Corp. ("Pinnacle")
Pinnacle is a provider of risk scoring and regulatory compliance analytics software to banks, credit unions, and financial institutions. Its products include credit risk models, BSA/AML transaction monitoring tools, and regulatory reporting automation. HPE Fund IV acquired Pinnacle in July 2024 for approximately $215 million. While Pinnacle's products are sold to financial institutions that also participate in the payments ecosystem (e.g., issuing banks, acquiring banks), Pinnacle does not itself provide payment processing services, merchant acquiring services, or payment gateway services. To the extent that VeloPay's Fraud intelligence subsidiary offers fraud detection analytics in the payments context, we note that Pinnacle's risk analytics products are focused on bank-level regulatory compliance (BSA/AML, credit risk) rather than transaction-level fraud detection in the payments processing flow. We address the potential for characterizing these as related product markets in greater detail in Section IV.C below.
Assessment of Competitive Overlap. Based on our analysis of each of HPE Fund IV's three payments and financial infrastructure platform investments, we conclude that there is limited or no direct horizontal overlap between VeloPay and any existing HPE Fund IV portfolio company. Each investment occupies a complementary but non-competing segment of the broader financial technology landscape:
• ClearBridge operates in the payment facilitation infrastructure layer, serving software platforms rather than merchants directly;
• Meridian operates in core banking technology, serving digital banks and neobanks; and
• Pinnacle operates in regulatory compliance analytics, serving banks and credit unions.
None of these companies competes with VeloPay in the core payment processing or merchant acquiring markets. From a customer's perspective, the products and services offered by each portfolio company are not interchangeable with VeloPay's payment processing platform. While there are tangential connections within the broader fintech ecosystem (as there are among many technology companies serving the financial services industry), these do not give rise to competitive concerns under established antitrust principles.
B. Associates and Affiliates Under HSR Rules
Under the HSR Act and its implementing regulations, the "acquiring person" for purposes of the filing includes not only HPE Fund IV itself but also all entities that are "controlled" by the same UPE. This means that all entities controlled by Harrowgate Capital Management IV LLC (or, if Mr. Harrowgate is determined to be the UPE, all entities controlled by Mr. Harrowgate) must be included in the overlap analysis. Under 16 C.F.R. § 801.1(d), the term "person" includes all entities under common control, which for a private equity fund structure includes the general partner, the fund itself, and all portfolio companies controlled by the fund.
We have conducted a comprehensive screening of all entities controlled by the Harrowgate Capital Management platform, including:
• HPE Fund IV and all of its portfolio companies (including ClearBridge, Meridian, and Pinnacle, as discussed above);
• HPE Fund III (vintage 2019; $4.2 billion fund) and its remaining portfolio companies;
• HPE Fund II (vintage 2016; $2.8 billion fund; substantially realized) and any remaining unrealized portfolio companies; and
• Harrowgate Capital Management's co-investment vehicles and other managed accounts.
The overlap screen for HPE Fund III and HPE Fund II portfolio companies has been completed and is summarized in Appendix B. No portfolio company in any Harrowgate-managed fund operates in the payments processing, merchant acquiring, payment gateway, or closely adjacent markets. HPE Fund III holds one investment in a financial data aggregation company (Broadfield Data Solutions Inc.), but this company's products are focused on consumer financial data aggregation for personal finance management applications and do not overlap with VeloPay's payment processing services.
Harrowgate Velocity Co-Invest LP. In connection with this Transaction, Harrowgate Capital Management formed a co-investment vehicle, Harrowgate Velocity Co-Invest LP (formation date: March 14, 2025; EIN: 93-2748163), to facilitate co-investment by certain limited partners of HPE Fund IV and other qualified investors. This co-investment vehicle has no independent operations and was formed solely for the purpose of participating in the Transaction alongside HPE Fund IV. For HSR purposes, Harrowgate Velocity Co-Invest LP is controlled by Harrowgate Capital Management IV LLC (which serves as its general partner) and is therefore included within the acquiring person. Its formation does not alter the competitive analysis, as the co-invest vehicle is merely a pass-through investment structure with no operating activities.
Investment-Only Exemption. To the extent that other Harrowgate-managed funds hold minority equity positions in fintech or payments-Westvale Industries that do not constitute "control" positions, we have analyzed whether the investment-only exemption under Section 7A(c)(9) of the HSR Act applies. This exemption provides that an acquisition of voting securities made solely for the purpose of investment is exempt from the reporting requirements, provided that the acquirer holds no more than 10% of the outstanding voting securities of the issuer (or 15% under certain conditions for institutional investors) and does not intend to participate in the management of the issuer. Based on our review, no Harrowgate-managed fund holds a minority position in any company that would create a competitive concern in connection with this Transaction, and the investment-only exemption analysis is therefore not outcome-determinative. We note this issue for completeness and in the event that FTC staff raise questions about the broader Harrowgate investment platform.
IV. Relevant Product Market Definition
The definition of the relevant product market is central to the competitive analysis under the HSR Act and the antitrust laws generally. In this section, we analyze the potential product market definitions that the DOJ staff may apply in reviewing the Transaction and recommend a characterization that accurately reflects the competitive dynamics and supports the conclusion that the Transaction does not raise competitive concerns.
A. Payments Processing Services
Core Market: Cloud-Based Payments Processing and Merchant Acquiring Services. VeloPay operates a cloud-native payments processing platform that provides end-to-end payment processing and merchant acquiring services to mid-market and enterprise customers across a range of industries. VeloPay's platform enables merchants to accept electronic payments (including credit cards, debit cards, digital wallets, and ACH transfers) through a unified technology stack that encompasses authorization, clearing, settlement, and reporting.
VeloPay currently processes approximately $87 billion in annualized gross payment volume ("GPV") across a portfolio of over 14,000 merchants. Its customer base is concentrated in the mid-market (annual revenue of $10 million to $500 million) and enterprise (annual revenue exceeding $500 million) segments, though it also serves a smaller number of high-growth small business customers.
VeloPay's revenue model consists of three primary components:
1. Interchange-plus processing fees: VeloPay charges merchants a per-transaction fee calculated as a markup over the applicable interchange rate set by the card networks (Pinnacle Enterprises, Hollowell Partners LLC, etc.). This is the largest component of VeloPay's revenue, representing approximately 72% of total revenue in FY2024.
2. SaaS subscription fees: VeloPay offers a suite of value-added software products on a subscription basis, including its analytics dashboard (VeloPay Insights) and its fraud detection and prevention suite (VeloPay Fraud intelligence). SaaS subscription fees represented approximately 19% of total revenue in FY2024.
3. Gateway transaction fees: VeloPay charges a per-transaction fee for use of its payment gateway technology (primarily through its PayStream Gateway subsidiary), which enables merchants to connect to VeloPay's processing platform and to third-party processors. Gateway fees represented approximately 9% of total revenue in FY2024.
For FY2024, VeloPay reported total revenue of $412.3 million and Adjusted EBITDA of $98.1 million, representing an Adjusted EBITDA margin of approximately 23.79%.
Product Market Definition Analysis. For purposes of this Transaction, we anticipate that the DOJ will likely define the relevant product market as "electronic payment processing services" or, potentially, a narrower market for "merchant acquiring and payment processing." Under established antitrust principles, a relevant product market consists of all products or services that are reasonably interchangeable by consumers in response to changes in price or other competitive variables (the "hypothetical monopolist" or SSNIP test).
In the payments processing industry, there is a broad continuum of services that could be characterized as part of a single product market, ranging from front-end payment gateway services to back-end clearing and settlement, and encompassing both traditional card-present processing and e-commerce (card-not-present) processing. The DOJ and FTC have not issued definitive guidance on the precise boundaries of the product market in this sector, and the market definition has varied across different enforcement actions and merger reviews.
Relevant precedent from the DOJ and FTC in the payments sector includes:
• In the Ridgeway Partners LLC / Total System Services merger review (2019), the DOJ cleared the transaction after an extended review, suggesting that the DOJ applied a broad market definition encompassing multiple segments of payment processing. The combined company represented a significant share of certain processing segments, but clearance without a consent decree indicated that the DOJ was satisfied with the competitive conditions in the relevant markets.
• In the Fidelity National Information Services (FIS) / Sundial & Co. merger (2019), the DOJ conducted an extended review but ultimately cleared the transaction, again suggesting a relatively broad view of the competitive landscape in payment processing.
• In more recent enforcement activity, the DOJ has shown increasing interest in vertical and conglomerate theories of harm in the fintech sector, though challenged transactions have generally involved horizontal consolidation among direct competitors rather than financial sponsor acquisitions.
Based on this precedent and the competitive dynamics of the industry, we believe the most appropriate product market definition is "electronic payment processing services," encompassing the full range of card-based and electronic payment processing, gateway, and merchant acquiring services. This broad definition accurately reflects the competitive reality that merchants choose among a wide range of processing solutions that are functionally interchangeable, and that processors compete across multiple segments of the processing value chain.
B. Payment Gateway Services
VeloPay's PayStream Gateway LLC subsidiary, which VeloPay acquired in August 2021 for approximately $45 million, provides payment gateway technology that enables merchants to securely transmit payment transaction data from their point-of-sale or e-commerce systems to the acquiring processor. PayStream Gateway serves both VeloPay's proprietary processing customers and a smaller number of merchants who use PayStream's gateway in conjunction with third-party processors.
The question of whether payment gateway services constitute a distinct antitrust product market, separate from the broader electronic payment processing market, is analytically relevant but ultimately does not affect the competitive assessment of this Transaction. From a market definition perspective, payment gateway services could potentially be characterized as a separate product market, as some merchants purchase gateway services independently from their processing services and switch between gateway providers without changing their underlying processor. However, the trend in the industry is toward vertically integrated platforms that bundle gateway, processing, and value-added services into a single offering, which suggests that the gateway market is converging with the broader processing market.
For purposes of the HSR filing, we recommend addressing payment gateway services as a component of the broader electronic payment processing market, while noting in the voluntary narrative that even under a narrower market definition limited to standalone payment gateway services, the Transaction would not raise competitive concerns. VeloPay's PayStream Gateway is a relatively small participant in the gateway market, and HPE Fund IV does not control any other payment gateway provider.
C. Fraud Detection and Analytics SaaS
VeloPay Fraud intelligence Inc., a wholly owned subsidiary of VeloPay, offers a fraud detection and prevention software product marketed as "VeloPay Fraud intelligence." This product uses machine learning algorithms and transaction pattern analysis to identify and prevent fraudulent payment transactions in real time. The product is offered both as a component of VeloPay's integrated processing platform and as a standalone SaaS subscription available to merchants and other payment processors.
Fraud detection and prevention software in the payments context could potentially be characterized as a separate product market. The competitive landscape for payments fraud detection is populated by a substantial number of specialized providers (including companies that focus exclusively on fraud prevention) as well as integrated capabilities offered by larger payment processors and technology companies. VeloPay Fraud intelligence represents a modest participant in this space, with FY2024 revenue from the fraud detection product estimated at approximately $38 million (including both standalone subscriptions and allocated revenue from the integrated platform).
As noted in Section III.A above, HPE Fund IV's portfolio company Pinnacle Risk Analytics Corp. operates in the risk scoring and regulatory compliance analytics space. While there is a surface-level thematic connection between Pinnacle's regulatory compliance analytics products and VeloPay's fraud detection software, the two products serve fundamentally different functions and customer needs. Pinnacle's products are bank-facing tools designed for BSA/AML compliance, credit risk assessment, and regulatory reporting, while VeloPay Fraud intelligence is a merchant- and processor-facing tool designed for real-time transaction fraud detection at the point of sale or e-commerce checkout. The customer bases are largely non-overlapping, the technical methodologies are distinct, and the products are not substitutes for one another. We do not believe that a reviewing staff attorney would conclude that Pinnacle and VeloPay Fraud intelligence operate in the same product market, but we recommend addressing this issue proactively in the voluntary narrative to forestall any questions.
D. Recommended Product Market Characterization for Filing
Based on the foregoing analysis, we recommend the following approach to product market definition in the HSR filing and the accompanying voluntary narrative:
Primary market definition: The relevant product market should be defined broadly as "electronic payment processing services," encompassing merchant acquiring, payment gateway services, transaction authorization, clearing and settlement, and associated value-added services. This definition is consistent with the fragmented competitive landscape and demonstrates the low level of market concentration.
Alternative narrower markets to address proactively: The voluntary narrative should acknowledge the potential for narrower market definitions and address them affirmatively:
• Merchant acquiring services: Even under a market definition limited to merchant acquiring, VeloPay's market share is modest, HPE Fund IV has no competing merchant acquirer in its portfolio, and the market is highly competitive.
• Payment gateway services: Even under a standalone gateway market, VeloPay's PayStream Gateway is a small participant, and there is no competitive overlap with HPE Fund IV's portfolio.
• Fraud detection and analytics SaaS: Even under a separate fraud detection market, VeloPay Fraud intelligence's market share is small, and Pinnacle Risk Analytics Corp.'s products do not compete in the same functional market.
By addressing these alternative definitions proactively and demonstrating that the Transaction is competitively benign under any plausible market definition, we can provide the reviewing staff attorney with confidence that extended inquiry is not warranted.
V. Relevant Geographic Market Definition
A. United States Market
VeloPay's payment processing services are offered nationwide across the United States. The Company holds money transmitter licenses in 47 states plus the District of Columbia (the three states in which VeloPay does not currently hold a license — Alaska, Montana, and South Dakota — either do not require a money transmitter license for VeloPay's activities or are in the process of being obtained). VeloPay's cloud-based platform is accessible to merchants throughout the United States without meaningful geographic limitation, and its merchant customer base is geographically dispersed across all major metropolitan areas and regions.
Electronic payment processing services are generally provided on a national basis in the United States. Merchants do not typically select their payment processor based on geographic proximity, and the cloud-based delivery model eliminates any geographic constraints on service provision. The card networks (Pinnacle Enterprises, Hollowell Partners LLC, Pinnacle Partners LLC, Discover) operate on a national (and global) basis, and the acquiring processor's ability to connect to these networks is not geographically limited. Accordingly, the relevant geographic market for payment processing services is the United States as a whole.
B. International Operations
VeloPay maintains international operations through two subsidiaries:
VeloPay Canada Inc. VeloPay Canada Inc. is an Ontario corporation that operates VeloPay's Canadian payment processing business. VeloPay Canada processes Canadian-dollar transactions for approximately 800 Canadian merchants, with annualized Canadian GPV of approximately $3.2 billion (CAD). VeloPay Canada Inc. holds the requisite regulatory approvals to operate as a payment service provider in Canada under the applicable federal and provincial regulatory frameworks.
VeloPay Europe, Unipessoal Lda. VeloPay Europe is a Portuguese limitada (single-member limited liability company) based in Lisbon, Portugal. VeloPay Europe serves two functions: (i) it operates as VeloPay's European research and development center, employing approximately 120 software engineers, and (ii) it supports VeloPay's nascent European operations, including cross-border payment processing for a limited number of European merchants. VeloPay Europe's revenue contribution is modest, representing less than 4% of consolidated FY2024 revenue.
For HSR purposes, the focus of the analysis is on commerce within the United States. The international operations are noted here for completeness and because they are relevant to related regulatory filings (see Section XIII regarding the Investment Canada Act notification for VeloPay Canada Inc.). The competitive analysis in this memorandum focuses on the U.S. market, consistent with standard HSR practice.
C. Recommended Geographic Market Characterization
We recommend defining the relevant geographic market as the United States (national) for all relevant product markets. This is the standard geographic market definition applied in the electronic payment processing industry and is consistent with the DOJ's approach in prior merger reviews in this sector.
In the voluntary narrative, we will note that the U.S. payment processing market is subject to significant competition from international payment processors and technology companies that operate on a global basis, further demonstrating the competitive vigor of the market and the absence of any geographic competitive concerns.
VI. Competitive Landscape and Market Concentration Analysis
A. Major Competitors in Payment Processing
The U.S. electronic payment processing and merchant acquiring market is large, dynamic, and highly fragmented. Total U.S. card payment volume exceeded $10 trillion in 2024, and the broader electronic payment processing market (including ACH, digital wallets, and other electronic payment methods) is substantially larger. The market is served by a diverse array of competitors, including large incumbent processors, card network-affiliated acquirers, bank-owned processing divisions, independent sales organizations (ISOs), and a growing number of technology-driven cloud-native processors.
The following table provides a summary of major competitors in the U.S. electronic payment processing market. A more detailed competitive landscape summary is provided in Appendix A.
VeloPay's position in this competitive landscape is that of a mid-sized, technology-differentiated processor focused on the mid-market and enterprise segments. With approximately $87 billion in annualized GPV, VeloPay represents a small fraction of total U.S. payment volume. Its competitive differentiation is based on its modern cloud-native architecture, its integrated analytics and fraud detection capabilities, and its developer-friendly API platform, rather than on scale or market share.
B. Herfindahl-Hirschman Index (HHI) Analysis
The Herfindahl-Hirschman Index ("HHI") is the standard measure of market concentration used by the DOJ and FTC in merger review. The HHI is calculated by summing the squares of the market shares of all firms in the relevant market. Under the DOJ/FTC Merger Guidelines (as revised in 2023), markets are classified as follows:
• Unconcentrated: HHI below 1,500
• Moderately Concentrated: HHI between 1,500 and 2,500
• Highly Concentrated: HHI above 2,500
Broad Electronic Payment Processing Market. Under the broad market definition of "electronic payment processing services," the U.S. market is highly fragmented, with no single firm holding a dominant market share. Based on the GPV data summarized in the table above and in Appendix A, the estimated HHI for the broad electronic payment processing market is approximately 750 to 900, well below the 1,500 threshold for a moderately concentrated market. The market is clearly unconcentrated by any standard measure.
Post-Transaction HHI Change. Because HPE Fund IV is a financial sponsor and does not itself operate a payment processing business, the Transaction does not combine two competing payment processors. The post-transaction HHI change attributable to this Transaction is negligible — effectively zero in terms of horizontal concentration effects. The only theoretical source of an HHI change would be if an HPE Fund IV portfolio company were treated as a competitor of VeloPay, but as discussed in Section III.A above, none of HPE Fund IV's portfolio companies operates in the payment processing or merchant acquiring market. Accordingly, the Transaction does not increase market concentration under any plausible market definition.
Narrower Market Definitions. Even under the narrowest plausible market definitions (e.g., "cloud-native payment processing for mid-market and enterprise merchants"), the market remains fragmented, with multiple well-funded competitors offering comparable cloud-based processing solutions. VeloPay's share of such a narrowly defined market would be larger than its share of the broad market, but even under aggressive assumptions, its share would likely be in the range of 5–10%, and the HHI of the narrowly defined market would remain well below the thresholds of concern under the Merger Guidelines. Moreover, because this is a financial sponsor acquisition and not a horizontal combination, the post-transaction change in HHI is immaterial under any market definition.
C. Competitive Effects Assessment
Horizontal Effects. There is no direct horizontal overlap between HPE Fund IV (or any of its controlled portfolio companies) and VeloPay in the payment processing market. This is a pure financial sponsor acquisition — HPE Fund IV is acquiring VeloPay as an investment, not to combine it with an existing competitor. Under established antitrust principles, a financial sponsor acquisition that does not combine competing businesses does not give rise to unilateral or coordinated horizontal effects. The Transaction will not eliminate a competitor from the market, will not increase the combined market share of any market participant, and will not alter the competitive dynamics among existing payment processors.
Vertical Effects. We have analyzed whether any HPE Fund IV portfolio company operates at a different level of the payment processing value chain in a manner that could create vertical integration concerns (e.g., foreclosure of rivals' access to inputs or customers). The relevant inquiry is whether HPE Fund IV could use its control of VeloPay and another portfolio company to foreclose competition at either level of the vertical relationship.
• Lumavex Payments Holdings LLC: ClearBridge provides payment facilitation infrastructure to software platforms. While there is a theoretical vertical relationship between payment facilitation platforms (which connect software companies to the payments ecosystem) and payment processors (which process the underlying transactions), this relationship does not create foreclosure concerns. ClearBridge's payfac customers typically use multiple processors, and VeloPay is only one of many processors that could serve ClearBridge's platform customers. There is no realistic mechanism by which HPE Fund IV could leverage the ClearBridge/VeloPay relationship to foreclose rival processors or rival payment facilitation platforms.
• Meridian Ledger Technologies Inc.: Meridian provides core banking technology to digital banks and neobanks. There is no meaningful vertical relationship between core banking ledger technology and payment processing services that would give rise to foreclosure concerns.
• Pinnacle Risk Analytics Corp.: Pinnacle provides regulatory compliance analytics to banks and financial institutions. While banks that use Pinnacle's compliance tools may also interact with payment processors like VeloPay (e.g., as issuing banks in card transactions), this relationship is attenuated and does not create a meaningful vertical lever.
We conclude that the Transaction does not give rise to vertical foreclosure concerns.
Conglomerate/Portfolio Effects. We have assessed whether the combination of HPE Fund IV's existing fintech investments with VeloPay could raise conglomerate or portfolio effects concerns, such as the potential for bundling or tying of products across the Harrowgate portfolio. Under current antitrust enforcement practice, conglomerate theories of harm are disfavored and require a showing that the merged entity would have the ability and incentive to bundle or tie products in a manner that forecloses competition. Given the disparate nature of the products offered by HPE Fund IV's portfolio companies and VeloPay, and the absence of any market power in any relevant market, we do not believe that conglomerate concerns are implicated by this Transaction. The portfolio companies serve different customer segments with different products, and there is no realistic mechanism for anticompetitive bundling or tying.
Potential Competition. HPE Fund IV is not a potential entrant into the payment processing market absent this Transaction. As a financial sponsor, HPE Fund IV does not develop or operate technology products directly. Its role is to provide capital, strategic guidance, and operational support to its portfolio companies. There is no basis on which to conclude that HPE Fund IV would have entered the payment processing market de novo through internal development or through the acquisition of a different target, and a potential competition theory of harm would not be sustainable on these facts.
D. Barriers to Entry
The U.S. electronic payment processing market presents meaningful barriers to entry, including:
• Regulatory licensing: Payment processors must obtain money transmitter licenses in each state in which they operate (currently 47 states plus Washington, D.C. require some form of licensing). The licensing process is time-consuming and requires substantial compliance infrastructure.
• PCI-DSS compliance: All entities that process, store, or transmit payment card data must maintain compliance with the Payment Card Industry Data Security Standard ("PCI-DSS"), which requires significant ongoing investment in security infrastructure and regular audits.
• Card network certification: Payment processors must be certified by each card network (Pinnacle Enterprises, Hollowell Partners LLC, Pinnacle Partners LLC, Discover) to connect to the network and process transactions. The certification process requires technical integration, testing, and ongoing compliance with network rules.
• Technology infrastructure: Building a modern, scalable, and reliable payment processing platform requires substantial upfront investment in technology infrastructure, engineering talent, and operational systems.
• Scale and network effects: While not insurmountable, the economies of scale in payment processing (particularly in negotiating interchange rates and maintaining processing infrastructure) create advantages for larger incumbents.
Despite these barriers, the payment processing market remains dynamic, with frequent entry and expansion by technology-driven competitors. Over the past decade, numerous new entrants — including cloud-native processors, embedded finance platforms, and fintech startups — have successfully entered the market and grown to significant scale. The ongoing pace of entry and innovation in the market is inconsistent with a finding that barriers to entry are sufficient to support anticompetitive effects, and instead supports the conclusion that the market is robustly competitive.
From an antitrust perspective, we note that these regulatory and operational barriers apply equally to all market participants and do not provide VeloPay or any other individual processor with a unique competitive advantage. The existence of barriers to entry is a feature of the market structure that the DOJ will likely note in its review, but in the context of a financial sponsor acquisition with no horizontal overlap, these barriers do not weigh in favor of enforcement action.
VII. Recent DOJ/FTC Enforcement Activity in Payments and Fintech
A review of recent antitrust enforcement activity in the payments and fintech sectors provides useful context for assessing the likely DOJ approach to the Transaction.
Recent Merger Reviews in the Payments Sector. Over the past five years, the DOJ and FTC have conducted extended reviews of several significant transactions in the payment processing and financial technology sectors. The largest of these transactions — including the Consolidated Payments / Apex Transaction Systems proposed combination (which was abandoned in 2023 following a DOJ challenge), the NovaCrest / BlueHarbor merger (cleared in 2022 after a consent decree requiring divestiture of BlueHarbor's small business processing portfolio), and the Stratos / GridPoint joint venture (cleared in 2024 without conditions) — have involved horizontal combinations of competing processors that presented meaningful market share issues.
DOJ Antitrust Division Priorities. Under the current administration, the DOJ Antitrust Division has maintained an active enforcement posture across a range of industries, including technology and financial services. The Division has signaled particular interest in the following areas:
• Platform markets and network effects: The DOJ has devoted significant attention to markets characterized by platform dynamics and network effects, which are present to some degree in the payments ecosystem.
• Private equity "roll-up" strategies: The DOJ has publicly stated that it is increasing its scrutiny of serial acquisitions by private equity firms that, individually, may not raise competitive concerns but that, in aggregate, may result in market consolidation. This is sometimes referred to as the "roll-up" or "serial acquisition" theory. While this theory has been discussed in the enforcement context, the DOJ has not yet successfully challenged a PE acquisition solely on roll-up grounds, and the theory remains the subject of significant academic and practitioner debate.
• Fintech and financial services: The DOJ has shown general interest in the competitive dynamics of the fintech and financial services sectors, consistent with the growing economic significance of these industries.
Application to This Transaction. The Transaction presents a fundamentally different profile from the strategic, horizontal combinations that have drawn the most significant DOJ scrutiny in the payments sector. This is a financial sponsor acquisition by HPE Fund IV, which does not itself operate a payment processing business and does not control any competing processor. The competitive concerns that animated the DOJ's challenge of the Consolidated Payments / Apex Transaction Systems merger — principally, the combination of two of the three largest merchant acquirers in the United States — are simply not present here.
The most relevant risk factor from an enforcement perspective is the DOJ's increasing attention to PE roll-up strategies. HPE Fund IV's three prior investments in payments and financial infrastructure (ClearBridge, Meridian, and Pinnacle) could prompt the DOJ to inquire whether this Transaction represents part of a broader strategy to aggregate assets in the payments value chain. However, as discussed in Section III.A above, the three prior investments are in non-competing segments and do not raise a credible roll-up theory. ClearBridge (payment facilitation infrastructure), Meridian (core banking technology), and Pinnacle (regulatory compliance analytics) each serve fundamentally different markets, and the addition of VeloPay (payment processing) does not combine competing products or create a vertically integrated chain that could foreclose competition. We anticipate that a clear and well-documented explanation of the distinct nature of each investment will satisfy any DOJ concerns on this point.
Historically, the DOJ has been less likely to challenge pure PE acquisitions in fragmented markets where the acquiring fund does not control a competing business. The enforcement actions that have been brought against PE-backed transactions have generally involved situations where the PE fund controlled a direct competitor of the target, creating a clear horizontal combination. That is not the case here. Nonetheless, we recommend treating this issue with care in the voluntary narrative and being prepared to address questions from the DOJ staff regarding HPE Fund IV's broader investment thesis in the fintech sector.
VIII. Second Request Risk Assessment
A. Likelihood of Second Request
Based on the analysis presented in this memorandum, we assess the overall likelihood of the DOJ issuing a Second Request at approximately 20–30%. This assessment reflects the following factors:
Factors Weighing Against a Second Request:
• No horizontal overlap: The absence of any horizontal competitive overlap between VeloPay and HPE Fund IV's existing portfolio companies is the single most important factor in the analysis. This Transaction does not combine competing businesses and does not increase market concentration in any relevant market.
• Fragmented market: The U.S. electronic payment processing market is highly fragmented, with VeloPay holding a market share well below 5% under any broad market definition. Even under the narrowest plausible market definitions, VeloPay's share is modest, and the post-transaction change in HHI is negligible.
• Financial sponsor buyer: HPE Fund IV is a financial sponsor, not a strategic acquirer. The DOJ has historically applied less scrutiny to acquisitions by financial sponsors that do not control competing businesses, recognizing that such transactions do not directly alter the competitive dynamics of the market.
• VeloPay's modest market position: VeloPay, while growing rapidly, remains a mid-sized player in a market dominated by significantly larger competitors. Its $87 billion in GPV represents a small fraction of total U.S. payment volume.
Factors That Could Increase the Likelihood of a Second Request:
• Transaction size: The $1.9 billion transaction value is significant and automatically flags the Transaction for a higher level of initial review at the DOJ. Larger transactions receive more attention as a general matter, regardless of the underlying competitive dynamics.
• DOJ interest in the fintech sector: The DOJ has demonstrated general interest in the fintech and payments sectors, and staff attorneys assigned to review filings in this space may be predisposed to conduct a more thorough review than in other sectors.
• PE investment strategy questions: HPE Fund IV's three prior platform investments in payments and financial infrastructure (ClearBridge, Meridian, and Pinnacle) could prompt the DOJ to inquire whether this Transaction is part of a broader roll-up strategy in the payments ecosystem. While we believe this inquiry would ultimately be resolved favorably, it could trigger additional scrutiny during the initial review period.
• Current enforcement environment: The DOJ Antitrust Division has maintained an aggressive enforcement posture under the current administration, and the threshold for issuing Second Requests may be somewhat lower than in prior administrations. The DOJ has publicly stated that it will use Second Requests as an investigative tool in a wider range of transactions.
Overall Assessment. Balancing these factors, we believe that the probability of a Second Request is approximately 20–30%. This is a meaningful but manageable level of risk. The most likely scenario is that the Transaction will be cleared through the initial waiting period (either by expiration or by grant of early termination) without a Second Request. However, we recommend that the deal team prepare for the possibility of a Second Request as a prudent precautionary measure.
B. Preparation for Potential Second Request
In light of the non-trivial risk of a Second Request, we recommend the following preparatory steps:
Document Preservation. HPE Fund IV should implement a litigation hold / document preservation protocol covering all documents and communications relating to the Transaction, VeloPay, the payments and fintech industry, and HPE Fund IV's investment strategy in the financial technology sector. This hold should cover the following custodians at a minimum:
• Richard Harrowgate — Founder & Chairman, Harrowgate Capital Management
• Priya Deshmukh — Managing Partner, Fund IV, Harrowgate Capital Management IV LLC
• Thomas Eriksen — Partner, Head of Financial Technology, Harrowgate Capital Management IV LLC
• David Constantinou — Managing Director, Pendleton Hawkes & Co. (HPE Fund IV's financial advisor for this Transaction)
Additional custodians may be identified as needed based on the scope of the Transaction team's involvement. We recommend issuing preservation notices to these individuals promptly, and no later than March 28, 2025.
Coordination with VeloPay. We will coordinate with Whitford Jessup & Crane LLP (Rebecca Thornton-Hayes) and Fielding McGrath LLP (Amara Osei) regarding VeloPay's own Second Request preparation. VeloPay will need to implement its own document preservation protocol and identify its custodians. The coordination should be conducted through appropriate clean team protocols to avoid the exchange of competitively sensitive information during the pending review period.
Document Review Protocol. If a Second Request is issued, we will need to establish a comprehensive document review protocol, including the retention of a document review vendor, the development of search terms and review guidelines, and the assignment of review attorneys. We recommend identifying a preferred document review vendor and obtaining preliminary cost estimates before the filing date so that we can move quickly if a Second Request is issued. Calderwood & Harkness's e-discovery team, led by Sarah Hollingsworth, has been placed on standby for this purpose.
Second Request Response Strategy Memorandum. If a Second Request is issued, we will prepare a separate, detailed Second Request Response Strategy Memorandum that will address the specific scope of the request, the estimated timeline for substantial compliance, the document review and production plan, and the strategy for engaging with the DOJ staff during the investigation. That memorandum will be prepared on an expedited basis following the issuance of any Second Request.
IX. Filing Preparation and Strategy
A. Item 4(c) and 4(d) Documents
Item 4(c) Documents. Under the HSR Act and the FTC's rules, the acquiring person must produce with its notification form all documents that were prepared by or for any officer(s) or director(s) of the acquiring person (or of its UPE) for the purpose of evaluating or analyzing the acquisition with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion into product or geographic markets. These are known as "Item 4(c) documents" (or, under the recently revised HSR rules, the analogous successor provisions).
For HPE Fund IV, the key categories of documents likely responsive to Item 4(c) include:
1. HPE Fund IV Investment Committee Memoranda: Any memoranda or presentations prepared for the HPE Fund IV investment committee that discuss VeloPay's competitive position, market share, competitors, market dynamics, or growth opportunities. These are the most likely source of responsive documents and will require careful review for both responsiveness and privilege.
2. Pendleton Hawkes & Co. Presentations and Analyses: Pendleton Hawkes & Co. (David Constantinou, Managing Director) serves as HPE Fund IV's financial advisor for this Transaction. Any presentations, analyses, or memoranda prepared by Pendleton Hawkes for the HPE Fund IV deal team or investment committee that discuss market shares, competition, or competitive dynamics are responsive. Financial advisor materials frequently contain competitive landscape analyses and market positioning frameworks that are responsive to Item 4(c), and these materials require particularly careful review.
3. Internal HPE Fund IV Deal Team Analyses: Any internal memoranda, spreadsheets, presentations, or communications prepared by Thomas Eriksen, Priya Deshmukh, or other members of the HPE Fund IV deal team that analyze VeloPay's competitive position, market share, or growth potential.