Zip-Sezzle BNPL deal falls through as rising interest rates hit consumer finance firms

The Zip logo is seen on a smartphone in front of the displayed same logo in this illustration taken on January 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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July 12 (Reuters) – Australia’s buy-now pay-later (BNPL) firm Zip Co Ltd dropped its plan to buy out US competitor Sezzle Inc, adding to the list of busted deals as rising interest rates slow the Consumer finance firms hurt.

As part of the immediate termination of the deal, Sezzle would receive $11 million from Zip, the companies said in a joint statement Tuesday.

The announcement sent Sezzle shares down about 33% for what was set for its worst day since March 2020, while Zip was up about 11% in early trade.

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In February, Zip had also attempted to raise up to A$198.7 million (US$133.80 million) in a stock offering alongside the buyout plan.

“We believe this may cause some dissatisfaction among investors who participated in the February capital raising due to the expected synergies of the transaction,” Wei-Weng Chen, an analyst at RBC Capital Markets, wrote in a statement.

Zip cited “current macroeconomic and market conditions” as the reason for withdrawing from the deal after saying in June “the acquisition of Sezzle remains on track.”

The market value of BNPL firms has shrunk rapidly in recent months as interest rate hikes to stem excessive inflation stoked concerns about a slowdown in consumer finance.

This has prompted Australia’s Latitude Group to withdraw its bid for Humm’s BNPL business and BNPL colleague Openpay to halt its operations in the US market. Continue reading

Sezzle, valued at A$491 million by Zip when the acquisition was announced in February, lost almost 82% of its value to A$84.9 million on Monday. Continue reading

“We remain committed to targeting profitability and free cash flow and believe this (cancellation of the transaction) is the best outcome for our shareholders,” said Charlie Youakim, Sezzle’s Chief Executive Officer.

Zip said it still expects to achieve group profitability in fiscal 2024.

($1 = 1.4863 Australian Dollars)

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Reporting by Indranil Sarkar in Bengaluru; Edited by Rashmi Aich

Our standards: The Thomson Reuters Trust Principles.

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