Zip swallows Sezzle in $491 million BNPL takeover

ASX-listed buy now, pay later (BNPL) fintech Zip plans to acquire rival Sezzle in a $491 million all-scrip merger.

The offer, now under a definitive agreement, will see Sezzle (ASX: SZL) investors swap their holding for 0.98 Zip (ASX: Z1P) shares, with Sezzle priced at $1.78 and Zip, $2.21.

The transaction offers 22% premium on Sezzle’s spot price and a 31.7% premium based on the 30-day volume weighted average price. Zip shareholders will own approximately 78% of the merged entity and Sezzle stockholders 22%

Three Sezzle directors, Charlie Youakim, Paul Lahiff and Mike Cutter, will join a bigger Zip board.

Youakim, the US-headquartered company’s co-founder, chairman, and CEO, will oversee the merged venture’s US, Mexican and Canadian operations.

To help pay for the acquistion, Zip plans to raise $148.7 million from fully underwritten placement to eligible institutional,
professional and sophisticated investors, plus another $50 million from a non-underwritten share purchase plan at $1.90, a 14 per cent discount on Friday’s closing price.

The merger ends Sezzle’s run on the ASX in less than three years after listing in July 2019 at $1.22 a share.

Founded in 2016 by Youakim and Paul Paradis, the company has built its success in the North American market.

Meanwhile Zip reported an 89% jump in revenue for H2 CY2021 to $302.2 million, aided by the acquistions of Spotii and Twisto late last year, bolstering customer numbers by 75%.

However gross profit fell by 23% and the BNPL fintech posted an after tax loss of $214.3 million.

Zip co-founder and global CEO Larry Diamond called the merger “a transformational transaction” expected to deliver immediate scale and enhanced growth, on a path to profitability.

“Combining with Sezzle positions us as a leading global BNPL provider and prioritises our ability to win in the important US market,” he said.

“Their responsible lending, their Sezzle Up credit builder programme, as well as their B Corp certification is to be admired.”

The combination of Zip and Sezzle is expected to result in pro forma 8.8 million customers and 60,500 merchants in the US, approximately 60% of the TTV of the combined business is estimated to be derived from the US, up from Zip’s 48% at the end of 2021.

This merger follows Latitude Group’s $335 million cash and scrip offer for fellow BNPL Humm Group in January this year, and Square’s $39 billion takeover of Afterpay last year to form ASX-listed Block.