Openpay share price surges on acquisition announcement

We examine the details behind Openpay’s just-announced acquisition: Payment Assist.

Following in the footsteps of Afterpay and Zip, Openpay on Tuesday announced it had entered into a deal to acquire 100% of Payment Assist – a UK-based, automotive-focused BNPL provider.

The market responded with unbridled optimism to the reveal: Openpay (ASX: OPY) opened the session at $1.47 and by the afternoon session was up as much as 20.21% to $1.70 per share. The stock closed out the session up 17%.

What is Payment Assist?

A buy now pay later company with a focus on automotive servicing and repair, Payment Assist is currently available at over 7,000 locations in the UK and has around 177,000 customers.

According to Openpay's ASX annoumcnet, Payment Assist booked £78.1 million in total transaction volumes in FY20, up 26% year-on-year, and the company is targeting transaction volumes of £105.3 million during this calendar year.

The company’s total addressable market is estimated at £26.7 billion – on an annual basis.

Why

Openpay management highlighted a number of key drivers behind the deal, including:

  • Accelerating the company’s path to profitability
  • Gaining a strong foothold in the UK BNPL market as a whole
  • Rapidly increase the company’s overall transaction volumes, customer base, as well as opening new avenues for further growth.

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Details of the deal

Looking at the specifics of the deal, the acquisition, once completed, would involve an upfront consideration of £11.5 million – made up of £8.2 million in cash and £3.3 million in Openpay stock.

Beyond that, there were some £17 million in earn-out considerations earmarked between FY21 to FY23, made up of two tranches and an out-performance earn-out consideration. 60% of these considerations would be paid in cash, while the remaining 40% would be paid in Openpay stock.

The company still requires approval from the UK's Financial Conduct Authority (FCA), but nonetheless expects the deal to be closed during the first half of fiscal 2022.

Looking at the tangible impact this acquisition would have had on Openpay's UK operations in CY20, the company, said that on a pro-forma basis, its UK total transaction volumes would have close to tripled, rising from £43.6 million to £121.7 million.

On the top-line, management noted that Openpay's UK revenue would have experienced a similar growth step-up in CY20, rising from £2.4 million to £ 8.4 million and boast what was described as very strong margins.

Commenting on the acquisition, Openpay's MD and CEO, Michael Eidel said:

'The proposed acquisition of this fast-growing business accelerates our automotive market entry and secures a significant foothold for Openpay in the UK. Material growth synergies exists between Openpay and Payment assist.’

By comparison, MD at Payment Assist, Neil Jeffery, said:

'By teaming up, Payment Assist and Openpay bring combined expertise and market knowledge which is unrivalled in the UK automotive industry. We are delighted to be joining with Openpay and look forward to the benefits we can bring to merchants and customers.'

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