Hedge funds and short sellers are believed to have provided the investor momentum for Zip Co’s equity raising on Monday when it confirmed plans to buy rival Sezzle.
Some suspect that the investors have made as much as between 60c and 80c a share on the transaction.
The buy now, pay later provider is the fourth most-shorted stock on the Australian Securities Exchange, with 11.39 per cent of shares held by short sellers as of late last week.
Advisers had been working at the weekend for Zip’s $148.7m equity raising through Jarden and Bank of America, and on Monday, it sent a message to fund managers that it had demand in excess of the deal size.
This was after prospective investors were wall crossed at the weekend, sources said.
Zip announced it was raising $148.7m by way of a placement at $1.90 per share in what was a 14 per cent discount to its last closing share price, as well as up to $50m through a share purchase plan.
The stock had already fallen from $3.32 since the start of February when the deal was already anticipated and many believed gathering the support it needed for the raise to proceed proved to be a nail biting exercise for those involved.
Sezzle, advised by Goldman Sachs, is being paid 0.98 Zip shares for every share of Sezzle, implying a $491m value of Sezzle at its close of trade on February 25 and a 22 per cent premium.
Zip said the transaction adds scale to support growth, particularly in the United States, where its customers will now have access to Sezzle’s US merchant network.
Zip reported a $173m loss for the six months to December despite an 89 per cent lift in its revenue to $302m.
Buy now, pay later providers have had a challenging market in the listed space with the threat of looming interest rates.
However, some now expect an interest rate rise may not be on the cards as early as some may have anticipated due to the emerging global economic uncertainty.
A year ago, the share price of the $1.3bn Zip was trading at more than $10.
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