Buy-now pay-later company Zip Co (ASX: Z1P) made waves in the fintech world in mid-2020 when it announced a $403 million acquisition of New York-based QuadPay - a merger that quickly doubled group revenue and has formed the bedrock of its North American expansion.
As of the most recent reporting period, the USA was Zip's leading source of revenue at $79.1 million, outpacing Australia-New Zealand which stood at $75.9 million in the December quarter.
On a year-over-year basis the group's growth was up 60 per cent in the United States, and with this momentum the company founded by Larry Diamond has today revealed takeover activity on the other side of the Pacific may not be over yet.
"Zip confirms it is in discussions with Sezzle in relation to a potential acquisition," the Melbourne-headquartered group reported in an ASX announcement.
"Zip is always interested in pursuing options that are in the best interests of shareholders; however the discussions with Sezzle are preliminary in nature and there is no certainty that the discussions will result in a transaction of any kind."
Prior to this revelation, Minneapolis-based Sezzle Inc (ASX: SZL) had a market capitalisation of $424.8 million, although like many companies in the sector its share price has fizzled over the past 12 months.
Operationally however, it may give Zip Co some blitzscaling potential after reaching an annualised run-rate of US$2.5 billion for underlying merchant sales in November with active customer numbers up 60 per cent and most of its business taking place in the USA and Canada.
As of the end of September Sezzle had 3.2 million active customers and 44,400 merchants on the platform, compared to Zip Co's more recent data of 9.9 million active customers and 81,800 merchants. As of November, Zip Co's transaction volume was annualising at more than $10 billion.
Sezzle also has budding operations in India, where Zip Co last year invested $69 million for a stake in ZestMoney, a leading local operator with 11 million registered users. The potential takeover target also has an early-stage presence in the EU and Brazilian markets.
Historically, Zip's founder has espoused a "coalition of founders" model that has been core to the success of the QuadPay venture, through which that company's co-founders Adam Ezra and Brad Lindeberg have a stake in Zip and are its US co-CEOs.
Related story: "We fly while we build": Q&A with Zip Co CEO Larry Diamond
The structure of any possible deal that eventuates from the Sezzle conversations is still unclear, although at the time of writing SZL shares are up 14 per cent at $2.44 each and Z1P shares are up slightly by 0.91 per cent at $3.31 each.
"The Zip Board remains committed to ensuring any transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities," Zip said.
"It will only pursue transformational transactions that help accelerate the delivery of Zip’s broader strategic objectives such as enhanced scale in core markets, improved customer and merchant propositions and a faster path to profitability through significant synergy opportunities.
"Sezzle confirms that it is currently engaged in preliminary discussions with Zip regarding a possible merger. No definitive agreement has been reached between the parties in relation to any transaction. There is no certainty at this time that these discussions will result in a transaction," Sezzle posted on the ASX.
It is now around nine months since Zip Co priced $400 million of senior convertible notes to fund expansion into new regions.
The news follows the official listing of US-based Block - the new name for Square - on the ASX following its acquisition of Zip Co competitor Afterpay.
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