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What are the implications of Zip’s QuadPay acquisition?

We examine the key highlights and implications behind today’s acquisition and raise announcement.

Z1P Source: Bloomberg

Buy now pay later darling Zip (Z1P) today announced that it would be accelerating its global expansion ambitions through the acquisition of US-based fintech Quadpay. In this same announcement, to accelerate the company’s growth trajectory, Zip also revealed that it was planning to raise as much as $200 million through a combination of warrants and convertible notes.

Zip share price surges on Quadpay acquisition

Centrally, under Zip’s proposed QuadPay acquisition agreement, the company plans to acquire 86% of QuadPay's shares, via a scrip consideration. For reference, prior to today’s acquisition announcement, Zip already had a 14% interest in QuadPay.

Under this agreement, current QuadPay shareholders will receive up to 119 million fully paid Zip shares, representing 23.3% of the company’s current issued capital.

According to Zip, the merged company will benefit from exposure to the world’s largest retail market, better global positioning, as well as access to increased scale and growth opportunities.

Quantifying some of these benefits, Zip touted that the combined group would have a footprint across Australia, New Zealand, the United States the UK and SA, as well as 'a combined annualised TTV of $3.0b, annualised revenue of $250m, 3.5m customers and 26.2k merchants.'

The response to this news from investors was electric, with the Zip share price being bid as high as $5.40 per share in the wake of this announcement, implying a move of over 40%.

At the time of writing, Zip’s stock traded at a still elevated $5.20 per share.

A raise to spur growth

Zip's QuadPay acquisition will be underpinned by an agreement with CVI Investments – an affiliate of Susquenhanna International Group (SIG) – that will see Zip raise as much as $200 million through the issuance of convertible notes ($100 million) and warrants ($100 million).

Looking at the specifics of this proposed raise: the convertible notes have a maturity date of five years from their issuance date and a 'fixed coupon of $0.75m per semi-annual instalment.' The notes have an initial conversion price of $5.5328.

Second, SIG will gain 19,365,208 warrants to obtain up to 19,365,208 Zip shares, which have an exercise price of $5.1639.

Excited by the prospect of the combined businesses, Zip's Chief executive, Larry Diamond noted:

'As a strategic investors 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. The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution.'

The market, seemed to be in agreement.

How to trade BNPL stocks

What do you think: was today’s reaction overdone or will Zip continue to rise? Trade accordingly. For example, you can trade Zip shares and other BNPL stocks – both LONG and SHORT – through IG’s world-class trading platform now.

To buy (long) or sell (short) Zip with CFDs, follow these simple steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Zip’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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