Zip and Sezzle Call off BNPL Merger [ASX:ZIP]

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BNPL stocks Zip Co [ASX:Z1P] and Sezzle [ASX:SZL] have terminated their proposed merger announced earlier this year.

Last month, Zip said the merger was still going ahead, but things have changed quickly.

The cancelled merger had contrasting effects on the two BNPL stocks involved.

ZIP shares rose 5% in late afternoon trade while SZL shares plummeted 35%.

Clearly, the market thinks Sezzle was better off merging and is now sceptical about Sezzle’s outlok as a standalone BNPL firm.

ASX:Z1p zip co stock prices chart


Zip and Sezzle part ways

This morning, BNPL stocks Zip and Sezzle separately announced they have mutually agreed to end merger plans, where Zip was set to acquire Sezzle.

The logic behind the decision appears to have been born from both market and macroeconomic conditions currently at play in the rocky economy.

From Zip’s point of view, the company is focused on plans and strategies linked to its profitability.

The company listed consistency in customers and transactions, the latter of which continues to grow in the company’s primary markets.

Zip said that it remains set on growth in the US, where the business believes there’s ‘significant opportunity’.

The BNPL company also took the opportunity to remind the public that it remains in line with its previously stated guidance and looks to group profitability in 2024.

Chair of Zip’s Board Diane Smith-Gander stated:

We believe that mutually terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment.’

Zip will be offloading US$11 million to cover termination costs for Sezzle, including legal and accounting fees, as mutually agreed.

Sezzle’s CEO Charlie Youakim also offered a comment on the termination:

While we were excited by the potential of this transaction, our Board and management team are laser-focused on our strategy and execution.

We remain dedicated to driving toward profitability and free cash flow and believe this is the best outcome for our shareholders.’

Sezzle didn’t spend too much time on the announcement, nor did it go into detail.

Instead, the company went straight onto providing preliminary results for the second quarter FY22.

Sezzle reported an estimated total income of US$28.5 to US$29.5 million for the June quarter (US$27.8 million in 2021).

June’s estimated Underlying Merchant Sales was US$415 to US$420 million (US$411.1 million in 2021) and Total Income estimates rest between US$8.5 to US$9.5 million (US$3.2 million in 2021).

More on second quarter results is expected to be released around 29 July.

The outlook on BNPL

It would appear Zip investors concur with the BNPL stock’s decision to back out of its proposed acquisition.

RBC Capital pointed out when the merger was first announced:

ZIP and SZL highlighted compelling strategic and financial motives for pursuing the merger including: meaningful customer benefits, complementary merchant networks, $130 million of synergies supporting ZIP’s path to profitability and balance sheet accretion.’

Have market conditions really changed these long-term goals?

Since the termination announcement, Sezzle has lost around 82% of its value, dropping from AU$491 million to AU$84.9 million.

Rising interest rates and declining consumerism in the retail sector has taken a toll on financial firms.

Australian BNPL stock Latitude Group has pulled out of its Humm buyout offer, and OpenPay has closed business on the UK and the US.

Now, the battery metals theme beats strong as the mass adoption of EVs is set to boost demand.

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Kiryll Prakapenka,
For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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