Zip Co’s merger talks with Sezzle end in dispute over price

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

The $2.6bn buy now, pay later provider Zip Co is understood to have held merger talks with its rival Sezzle in recent months.

However, the understanding is that Sezzle wanted Zip Co to pay too much money for Zip Co’s liking and the talks went cold.

DataRoom reported last month that a deal between the pair could be on the cards, with investment bank Morgan Stanley close to Sezzle and Bank of America and Jarden close to Zip Co.

But mergers and acquisitions in the BNPL sector may be more urgent than ever with the pending arrival of Apple as a competitor in the US market.

Some believe that BNPL providers will be forced to raise equity in the new year as they face the prospect of losses and a need to boost their cash reserves.

Among those in focus are Openpay, whose shares are about a third of the value they were at the start of the year, Humm and New Zealand-based Laybuy.

Sezzle’s market value has fallen substantially in recent weeks to about $674m, from about $1bn in October.

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 are now trading at about $4.50 with its market value at $2.6bn, after the shares traded at more than $7 in October and soared to beyond $13 earlier this 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 move into profitability.

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.

Compounding the fears of Apple’s arrival in the US market is the prominence of large payment groups such as PayPal and the pending $US29bn ($40bn) merger of Afterpay and Square.

Many believe gaining critical mass is a tough ask for the groups that are too small to take on the major players, even with merger activity.

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.