Zip Co, Sezzle revive merger talks with BNPL under pressure

At the start of the year, Zip Co had more than 7.3 million users and 51,300 retail partners. Picture: AAP

The $1.96bn buy now, pay later provider Zip Co is believed to have revived talks with Sezzle in recent weeks, with discussions said to centre on a scrip acquisition of its smaller rival.

The pair are known to have held on-again-off-again talks in recent months, with Zip Co walking away because of Sezzle’s price demands.

DataRoom has learned that exclusive negotiations have again been unfolding in which suggestions have been made that Zip could be paying a premium of as much as 50 per cent for its smaller competitor.

Involved in the deal are understood to be Goldman Sachs, Bank of America and Jarden, with the latter two parties known to have been close to Zip Co.

It comes as BNPL providers are under pressure to consolidate as their share prices languish ahead of anticipated interest rate rises. Also adding to the urgency is the pending arrival of Apple as a competitor in the US market.

In recent weeks, Latitude agreed a deal to buy Humm’s consumer business for $335m after DataRoom revealed last month that the non-bank lender had come forward with a proposal to buy that division, but at that time there had been differing views on price.

Sezzle’s market value had fallen substantially last month to about $674m, from about $1bn in October, and it is now at $479m.

ZipMoney co-founder Larry Diamond.

It is listed in Australia but based in the US and has been described as a well-run business that lacks competition in the parts of the US in which it competes.

Sezzle has more than 7.8 million users and more than 40,000 participating merchants.

Larry Diamond’s Zip Co has also seen its market value substantially fall since October.

Its shares closed on Monday at $3.28, down from $4.50 last month when its market value was at $2.6bn.

It is now worth $1.95bn after the shares traded at more than $7 in October, and soared to beyond $13 early last year.

The objective for Sezzle and Zip Co is to gain critical mass, as is the case for all BNPL providers in a quest to become profitable.

At the start of the year, Zip Co had more than 7.3 million users and 51,300 retail partners.

Unlike Afterpay, which offers credit over six weeks, Zip offers consumer credit over more than six months.

Zip Co’s business model is also slightly different to Afterpay’s in that the latter’s customers do not pay interest or fees on their credit unless they do not pay on time.

The three largest BNPL providers globally are Klarna, which counts Commonwealth Bank as an investor, Australia’s Afterpay and the San Francisco-based company Affirm.