Shares in Zip Co. jumped more than 40% following news that it will acquire the major US buy-now-pay-later venture QuadPay in an all-scrip deal to drive international growth, as well as raising $200 million.
QuadPay shareholders will receive up to a 23.3% stake in the Australian fintech (ASX: Z1P) – a maximum of up to 119 million shares – as part of the sale of the New York-based venture, founded in 2017, valuing it at around AU$400 million.
Zip shares were at $3.75 when trade was suspended on Tuesday prior to the announcement and soared as high as $5.33 in afternoon trade before ending the day up 38% at $5.20.
QuadPay’s interest free installment payments over six weeks are used by around 1.5 million customers, involving 3,500 retailers, including Walmart and Nike. The US market is 15-times the size of Australia’s.
Post-completion, Zip says the combined group will have global operations in five countries (AU, NZ, US, UK and South Africa) with combined annualised total transaction value of $3 billion, and annualised revenue of $250 million from 3.5 million customers and 26,200 merchants.
Zip’s board said in the ASX announcement that the QuadPay acquisition was “a compelling investment proposition for shareholders”, citing that the company uses the same core technology and source code as Zip’s UK and NZ businesses.
The deal is subject to Zip shareholder approval. Zip already holds a 14% interest in QuadPay, through its acquisition of New Zealand-based PartPay Ltd in 2019 (which had a strategic interest in QuadPay).
QuadPay co-founders and joint CEOs Adam Ezra and Brad Lindenberg will join the Zip global leadership team, with ultimate responsibility for scaling the US business. Delivering on those “aggressive growth targets” could deliver them up to US$60m worth of additional Zip shares.
Zip said that both companies had not seen a deterioration to loan book performance, demonstrating the resilience of the BNPL model.
Zip has also engaged US-based Susquehanna International Group (SIG) to raise up to $200 million by way of the issue of convertible notes convertible notes have an initial conversion price of $5.5328 , a 50% premium tothe 1-day volume weighted average price of Zip shares on 29 May, prior to the announcement. The raise also includes the exercise of warrants at an initial exercise price of $5.1639, a premium of 40%.
Zip CEO and co-founder Larry Diamond said that as strategic investors in QuadPay they’d spent considerable time with Ezra and Lindenberg, who shared “a united vision of disrupting the outdated credit card”.
“The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution,” he said.
“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.”