Australian buy-now pay-later company Zip Co (ASX: Z1P) has today entered into a merger agreement with US-based rival Sezzle, valuing the target at approximately $491 million.
Concurrently, Zip has announced a $198.7 million capital raise and record December half results, with significant growth in key metrics including revenue, transaction volume and transaction numbers.
Under the proposed transaction, Sezzle stockholders will be entitled to receive 0.98 Zip shares for every share of Sezzle common stock owned, valuing the US company at a 22 per cent premium based on prices of both Sezzle ($1.78) and Zip ($2.21) as of 25 February.
Upon completion of the merger, expected to occur by the end of the third quarter of 2022, Zip shareholders will own 78 per cent of the combined group, while Sezzle stockholders will own the remaining 22 per cent.
The merger, unanimously approved by both companies’ boards of directors, will mean the combined company will have pro forma 8.8 million customers and 60,500 merchants in the US.
“We are delighted to be bringing Zip and Sezzle together under a transformational transaction that is expected to deliver immediate scale and enhanced growth, which will support our path to profitability,” Zip co-founder and CEO Larry Diamond said.
“Combining with Sezzle positions us as a leading global BNPL provider and prioritises our ability to win in the important US market.
“Pete and I have known Charlie [Youakim] and Paul [Paradis] (co- founders of Sezzle) for some time, and we’ve been impressed by what the Sezzle team has achieved. Their responsible lending, their Sezzle Up credit builder programme, as well as their B Corp certification is to be admired. We’re excited to welcome the entire Sezzle team on our journey, as we continue our mission towards being the first payment choice, everywhere and every day.”
Diamond’s sentiments were echoed by CEO Youakim, who co-founded Sezzle with Paradis and Killian Brackey in 2016.
“We are extremely excited about the opportunity to create a leader in the financial services industry by combining withy Zip and its management team led by Larry and Pete,” Youakim said.
“Paul and I believe it will be a great cultural fit for both our organisations and we’re excited to be part of Zip’s next chapter.
“I believe the transaction will position us to win in the US and globally.”
According to Zip, the merger is expected to be accretive to revenue per share, and EBTDA per share in FY24, with profitability anticipated by then assuming the full impact of the targeted potential synergies are realised.
As part of the deal, Zip will expand its board of directors to nine members, comprising three persons appointed by Sezzle (Youakim as executive director and Paul Lahiff and Mike Cutter as non-executive directors) and an independent director mutually agreed between Zip and Sezzle.
Upon closing, Youakim will become President and CEO of the Americas (US, Mexico and Canada) and executive director and President of Sezzle.
In addition, Zip is also establishing an American Depository Receipts program, with such securities required to be listed on a US exchange as a condition to closing of the proposed transaction.
As a result, Zip says it now has a pathway to explore a US IPO in the future, in addition to greater access to new pools of capital in the larger market.
Zip to raise nearly $200 million
In conjunction with the merger announcement, Zip has launched a fully underwritten institutional placement to raise $148.7 million at a fixed price of $1.90 - a 14 per cent discount to Zip’s last closing price on 25 February.
A further $50 million will be raised as part of a share purchase plan, bringing the total amount to be raised close to $200 million.
The placement will result in the issue of approximately 78.3 million Zip shares, representing approximately 13.3 per cent of existing shares on issue.
“Proceeds of the Placement will help Zip strengthen its balance sheet and positions Zip for sustainable growth by providing more capital runway to execute on potential synergies from the Proposed Transaction,” says Zip.
Zip chalks up a record December half
The BNPL company also posted its results for the six months to 31 December 2021 today, reporting record figures across key metrics.
Revenue hit $302.2 million, up 89 per cent year on year - a record for the time period - as well as record transaction volume (TTV) of $4.5 billion (up 93 per cent year on year).
Transaction numbers grew substantially to 36.3 million, up 147 per cent, and customer numbers grew by 74 per cent to 9.9 million.
The company remains loss-making, however the $214.3 million loss after tax was an improvement on the previous December half’s loss of $453.8 million.
“We are pleased to report another strong set of numbers with exceptional growth in our key growth metrics - transaction volume, revenue, and both customer and merchant numbers,” CEO Diamond said.
“We acknowledge there has been a shift in the external environment, arguably quicker and more severe than we first forecasted. Accordingly, we have refined our strategy with a focus on sustainable growth in our core markets, maintaining strong unit economics – particularly credit performance, broader cost management, right-sizing our international footprint, which accelerates our path to profitability. We have already taken decisive actions in line with this focus.
“We continue our commitment to delivering transparent, fair and innovative financial products, that deliver value to our customers and merchants, in line with our mission to be the first payment choice everywhere and every day.”
Get our daily business news
Sign up to our free email news updates.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support