MILAN (Reuters) – Italy’s Nexi and SIA agreed a long-awaited merger on Monday to create a dominant domestic payments group with 1.8 billion euros ($2 billion) in revenue and ambitions to expand in Europe.

An Italian preference for cash has held back digital transactions in the euro zone’s third-largest economy and Rome is encouraging a shift to electronic payments in its battle with the so-called black economy.

The COVID-19 pandemic has accelerated the switch away from banknotes and the government hopes the Nexi-SIA combination will complement planned state incentives for digital payments.

“This is a strategic transaction for its implications for fighting tax evasion through digital payments,” Industry Minister Stefano Patuanelli said on Facebook.

The deal is the latest in a wave of consolidation in the payments industry, which was crowned this year by the 7.8 billion euro acquisition of Ingenico by France’s Worldline WLN.PA to create the world’s fourth-biggest payments firm.

While Nexi NEXII.MI is focused on the Italian market, SIA generates a third of its revenue abroad. SIA’s biggest domestic client is UniCredit and a recent deal to renew their partnership removed a major hurdle for the Nexi tie-up.

“This company will be much more international three years from now,” Nexi boss Paolo Bertoluzzo, who will head the new group, said in a statement.

The all-share merger, which is expected to close by the summer of 2021, values SIA, which is controlled by Italian state investment agency Cassa Depositi e Prestiti (CDP) at 4.6 billion euros, roughly half the market value of Nexi.

TWO TO TANGO

With an overall equity value of 15 billion euros and some 3 billion euros in debt, Nexi-SIA is the largest deal involving private equity funds in 2020, surpassing the 17.2 billion euro leveraged buyout of Thyssenkrupp’s TKAG.DE elevators business.

CDP will own a quarter of the new group, making it the single biggest shareholder, followed by Nexi’s private equity owners Advent, Bain Capital and Clessidra, with 23%.

Nexi and SIA have been in merger talks for a year-and-a-half to resolve governance and valuation differences. Together they will have a 70% market share in Italy, Jefferies estimates.

Bertoluzzo said that while Nexi-SIA would have an M&A wish-list, it would not be able to cherry pick acquisitions in a fast-moving sector.

“It takes two to tango and therefore we will simply look at the opportunities that become available,” he told analysts.

Milan-based Nexi-SIA will consider domestic M&A to boost its tech skills and add merchant books, while outside Italy it will look for bank payment assets and to grow in countries where it already operates, Bertoluzzo said.

The new group will be a leader in Europe, handling payments for roughly 2 million merchants, managing 120 million cards and processing more than 21 billion transactions a year.

It expects to generate pro-forma adjusted core profit of 1 billion euros, with recurring synergies of 150 million euros.

Nexi was advised by Bank of America, Mediobanca and HSBC while JPMorgan and Rothschild represented SIA. Intesa Sanpaolo and Nomura advised Mercury, the private equity vehicle controlling Nexi.

($1 = 0.8527 euros)