Buy-now-pay-later giant Zip Co (ASX: Z1P) has today announced its boldest move to date after entering a deal to sacrifice 23.3 per cent of its shares in exchange for ownership of New York-based QuadPay.
If the deal goes ahead it will see Zip Co's annual total transaction value (TTV) lifted by almost $900 million, representing an increase of around 43 per cent for the group.
The company says the agreement gives founder-led QuadPay an enterprise value of approximately US$269 (AUD$403 million). But at Zip Co's trading price before entering a trading halt yesterday, the 119 million shares being given to QuadPay shareholders would be worth $446 million.
Now the implied value would be even greater, with Z1P shares surging 35.47 per cent to $5.08 since the announcement was made at 1:25pm AEST.
Zip Co will also offer up to 12 million options for QuadPay shareholders to buy more Z1P shares.
The Sydney-headquartered company has agreed to pay the co-founders of the US group up to US$60 million (AUD$88 million) subject to performance milestones, as well as tenure milestones through the issuance of up to five million shares.
At yesterday's trading price this meant Zip Co would be paying up to around $598 million in mostly scrip and some cash if targets were met. At the current share price that figure is lifted to $779 million.
"We are delighted and excited to have the QuadPay team join the Zip family. As a strategic investor in the business, we have spent considerable time with the founders, Adam [Ezra] and Brad [Lindeberg], and share a united vision of disrupting the outdated credit card with a digital, and fairer alternative," says Zip Co CEO and co-founder Larry Diamond.
"The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution. We have been impressed by QuadPay's continued innovation.
"They were first to market with a virtual card solution in the BNPL space and have continued to evolve and innovate their offering. We look forward to this exciting new chapter in the Zip journey."
QuadPay co-CEOs and co-Founders Adam Ezra and Brad Lindenberg, who will form part of Zip Co's leadership team, are thrilled to join the Australian company.
"This is a great opportunity for QuadPay and our team to join Zip in establishing a truly global BNPL platform and scaling even faster," they said.
"A generational change is underway - customers are changing the way they pay, leaving behind credit cards and gravitating towards interest free instalments.
"By combining Zip's resources, geographic coverage, data capabilities, category leadership and experience, we look forward to driving strong growth together in North America and across core markets."
Post-completion, Zip expects to have around $3 billion in TTV annualised revenue of $250 million, 3.5 million customers and 26,200 merchants.
At the end of March, QuadPay had more than 1.5 million customers and 3,500 merchants, including brands such as Fashion Nova and Deckers (UGG).
QuadPay was amongst the first BNPLs to leverage virtual card technology in partnership with Stripe, and its proprietary QuadPay Anywhere technology facilitates instalments anywhere within the Visa acceptance network online and offline, and enables in-store rollout with no point of sale (POS) integration.
The platform is ranked in the top 100 US shopping apps with an App Store rating of 4.8.
The Australian BNPL outfit has entered into an agreement with CVI Investments, an affiliate US-based Susquehanna International Group, to raise up to $200 million by way of the issue of convertible notes and the exercise of warrants.
Diamond says the proposed capital investment from Susquehanna will allow Zip to hit the ground running as it scales up operations, while protecting shareholder interests by limiting dilution.
"The terms of the investment are a strong endorsement of the growth potential of the Zip business and we look forward to working with such a highly regarded growth investor," he says.
A Zip Co shareholder vote on the merger will take place at extraordinary general meeting (EGM), with management expecting to complete both the QuadPay acquisition and the convertible note raising during the first quarter of FY21.
Business News Australia
Get our daily business news
Sign up to our free email news updates.