Introduction

To accelerate its global expansion strategy, Zip Co Limited will purchase the remaining shares in New York-based QuadPay, Inc. for $403 million. Australian buy-now-pay-later company Zip Co has taken this step to strengthen its presence in the US and to take on its rival Afterpay. 14% interest in QuadPay is already owned by Zip which it bought as a part of its deal with New Zealand-based PartPay for $84.4 million in August 2019. 

According to a Roy Morgan report, 52.2% of Australians are aware of ‘buy-now-pay-later’ systems. More than 1.95 million Australians have used ‘buy-now-pay-later’ payment option offered by the various players. In Australia, Zip Co is the second most used buy-now-pay-later service next to Afterpay. Zip Co experienced an 80% increase in customers from December 2018 to December 2019. Its total number of users increased to 1.8 million. 

More about Zip Co-QuadPay deal

Under this scrip deal, shareholders of QuadPay will be entitled to receive up to 119 million shares of Zip Co. This is 23.3% of the entire share capital of Zip. The Aussie company has also said yes to issuing additional shares to the co-founders of QuadPay’s subject to their satisfaction of prescribed performance along with tenure milestones.

Zip CEO Larry Diamond says that the acquisition of QuadPay comes at a time when a “generational change” is happening in payment methods. He added that customers are leaving behind credit cards and opting for interest-free instalment plans. 

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As a strategic investor in Quad Pay, Diamond says that the company has spent considerable time with the founders and that they share a mutual vision of replacing the outdated credit card market with an easier and fairer digital option. 

While the deal is subject to the approval of shareholders, it would expand Zip’s customer base by 75%. The deal has also brought a positive effect on the share prices on Zip Co on the ASX.

Effect of the deal on Zip Co share prices

Interestingly, the Zip Co shares on the ASX have also soared since the deal. Before the announcement, share prices of Zip Co Limited were $3.75. On Tuesday afternoon post the announcement, the price increased by more than 40% to $5.40.

About Zip’s share prices, Diamond said that they, as a board, don’t believe that a share price in the 3s (less than or equal to $3) represented a fair value for the shareholders of Zip.

After the deal is finalized, Zip will have its operations in Australia, the US, UK, New Zealand and South Africa. The company is expecting to have a total transactions volume of $3 billion annually. Its annualized revenue will be increased by about 40% and expected to reach approximately $250 million. The business will be generated from 3.5 million customers and 26,000 merchants under its umbrella.

According to Larry, conquering the US market is a critical part of their global strategy. They were impressed with Quad Pay’s journey and its services in the US and hence wanted to do business with QuadPay. Mr Diamond also said that Zip would use its resources, geographic coverage, category leadership and experience to thrive in the US and other markets. 

Conclusion

Zip Co’s acquisition of QuadPay for $403 million is a major strategic move that will help the Australian buy-now-pay-later company strengthen its position in the US market and compete more effectively with Afterpay. By expanding its operations globally, Zip Co aims to capture a larger share of the growing demand for interest-free installment payment systems. With the deal, Zip is not only increasing its customer base but also expanding its revenue potential. This acquisition signals a new phase in Zip Co’s growth, with a focus on providing a better and fairer alternative to traditional credit card payments. The surge in Zip’s share prices reflects investor confidence in this bold step toward global expansion.

FAQs

1. What is Zip Co’s recent acquisition?
Zip Co acquired the remaining shares of QuadPay for $403 million to strengthen its presence in the US market.

2. How much of QuadPay did Zip Co already own before the acquisition?
Zip Co owned a 14% interest in QuadPay, which it bought as part of a deal with PartPay in 2019.

3. How will this deal benefit Zip Co?
This acquisition will expand Zip’s customer base by 75%, give them a larger foothold in the US, and increase their annual transaction volume to $3 billion.

4. How has Zip Co’s share price reacted to the deal?
After the announcement of the acquisition, Zip Co’s share price soared by more than 40%, rising from $3.75 to $5.40.

5. What is Zip Co’s global strategy?
Zip Co aims to expand its operations globally, focusing on key markets like the US, UK, New Zealand, and South Africa. The goal is to become a dominant player in the buy-now-pay-later market.

6. How will this deal affect Zip Co’s revenue?
Zip Co expects its annualized revenue to increase by about 40%, reaching approximately $250 million following the acquisition.

7. Why did Zip Co choose to acquire QuadPay?
Zip Co sees QuadPay as a strong player in the US market, and the acquisition is part of Zip’s strategy to replace credit cards with easier, interest-free payment options.