Aussie buy-now-pay-later company Zip wants to buy out New York-based payments company QuadPay in a bid to firm up its presence in the United States to take on rival Afterpay.
Zip has offered 119 million shares — 23.3% of the company— to QuadPay investors and up to $60 million in additional shares for the company’s Aussie founders Adam Ezra and Brad Lindenberg, in a deal that would significantly expand the size of Australia’s second largest BNPL player.
While the deal is still subject to shareholder approval, it would increase Zip’s customer base by about 75% and its annualised revenue by just under 40%, netting it an extra $70 million annually.
Zip bought a 14% interest in Quadpay in August last year as part of its $84.4 million deal for Auckland-based PartPay and speculation has mounted since that the ASX-listed firm would look to up its stake amid an expansion into the US.
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Zip has been looking for a partner to de-risk its global expansion strategy as it looks to play catch up against Afterpay, which has already established a sizeable and growing foothold in the US.
Zip chief executive and co-founder Larry Diamond said in a statement that QuadPay was it.
“As a strategic investor in the business, we have spent considerable time with the founders, Adam and Brad, and share a united vision of disrupting the outdated credit card with a digital, and fairer alternative,” Diamond said.
“The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution”.
The company has turned to US-based investor Susquehanna International Group (SIG) for up to $200 million in capital to support the expansion, including $100 million in convertible notes (equity debt) and warrants that entitle SIG to about 19 million Zip shares at $5.16 a pop.
Both the deal and the SIG investment are subject to the approval of Zip shareholders.
The US is a potential gold mine for Australia’s BNPL companies as the world’s largest consumer market, and following the acquisition, Zip will have positioned itself as one of the biggest fish in the pond, with operations in Australia, New Zealand, the United Kingdom, South Africa and the US.
QuadPay already has 3,500 merchants on its platform, providing Zip with easy access to partners as it extends its presence across the Pacific.
In a joint statement attached to Zip’s investor release, Ezra and Lindenberg said a “generational change” was underway in the payments space.
“Customers are changing the way they pay, leaving behind credit cards and gravitating towards interest-free instalments. By combining Zip’s resources, geographic coverage, data capabilities, category leadership and experience, we look forward to driving strong growth together in North America,” they said.
This article was updated at 10:15AM June 4.