Australia’s Zip to buy U.S. buy-now-pay-later rival Sezzle amid softening market

Industry:    3 months ago

Australian buy-now-pay-later (BNPL) firm Zip Co Ltd plans to buy U.S. rival Sezzle Inc for A$491 million ($352.59 million), building its footprint in the largest retail market as sluggish trade elsewhere earned it a half-year loss.

Zip and Sezzle, which are both listed in Australia, had previously disclosed that they were discussing a buyout. They said they agreed terms on Monday, just as Zip confirmed a A$108.1 million loss for July-December, excluding one-off items, versus a small underlying profit a year earlier.

Zip also said pre-tax loss halved to A$214.2 million when factoring in one-off items, including a A$44.7 million impairment charge on its British unit which it bought for about A$50 million in 2019. It had previously blamed rising bad debt and disappearing COVID-19 stimulus payments for a weaker operating environment.

“The U.K. remains further away than we’re comfortable with to continue to invest at the same rate,” said Chief Executive Larry Diamond, Zip’s founder and largest shareholder with 9.3% of its stock.

“We still believe in the global opportunity. What we’re calling out is the investment strategy to core markets where we’re closer to profitability,” he said on a call with analysts.

Cost-savings by combining the two companies would see Zip turn a profit in 2024, Zip said in a statement.

The BNPL sector enjoyed a meteoric rise during the COVID-19 pandemic when online shoppers preferred alternate sources of credit for purchases. It has since consolidated rapidly, with Jack Dorsey-backed Block Inc’s, $29 billion buyout of Afterpay in August among the sector’s biggest deals.

Shares of Zip and Sezzle were in a trading halt as Zip sought to raise up to A$198.7 million in a stock issue alongside a planned all-stock buyout of its U.S.-focused rival.

“While we see the acquisition of Sezzle as positive in terms of reducing the cost base, we expect the focus to be on delivering on the revenue synergies,” said Citi analysts in a client note, pointing out that Zip’s half-year results had been pre-announced.

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