Zip targets US market with acquisition of QuadPay

Australian buy now, pay later provider Zip has amped up its global expansion plan by acquiring US-based QuadPay.

Zip has launched a tilt at the huge US market with its acquisition of QuadPay. Picture: AAP

Zip chief executive Larry Diamond says the fast-paced rise of buy now, pay later schemes has started “the slow death” of the credit cards, as consumers are catching onto zero interest payment options.

His comments came as the Australian fintech provider has amped up its global expansion plan by acquiring US-based QuadPay and raising an additional $200m in capital, which sparked an intraday share price surge of more than 40 per cent.

Mr Diamond told The Australian, the acquisition of QuadPay will enable the company to increase its product offering in the North American market, and capitalise on the decreasing use of credit cards globally.

“We are starting to see the slow death of the credit card,” Mr Diamond said.

“These [BNPL] products and solutions are providing a fairer and better digital alternative.”

Investors embraced the all-share acquisition deal worth $403m for the New York-based company, with Zip shares closing up 38.7 per cent to $5.20 each — its highest share price since October 2019.

Zip, which is Australia’s second largest buy now, pay later provider behind Afterpay, said it will acquire the remaining 86 per cent of Quadpay through a scrip offer. It already owned 14 per cent of QuadPay through its 2019 acquisition of New Zealand company PartPay.

The domestic BNPL sector has experienced a strong uptake during the COVID-19 shutdown, benefiting from an increase in online sales.

Mr Diamond said the adoption rates during April and May has brought forward Zip’s online penetration forecasts by a few years.

QuadPay investors will be entitled to a maximum of about 119 million shares in Zip through the scrip offer, equivalent to 23.3 per cent of the Australian firm’s issued share capital, at completion.

Zip said the acquisition will add to its transactions volume and revenue.

Zip and QuadPay will continue to operate in the US as separate brands, however Mr Diamond said consolidation into one product offering will occur in the near future.

The digital laybuy provider noted increased exposure to the $US5 trillion US retail market, which is about 15 times larger than that of Australia, will build on a global strategy that already includes operations in South Africa and the UK.

“Zip strongly believes that the expansion into the US is both significantly de-risked and accelerated through collaboration with a strong, known and trusted partner,” the company said.

Simultaneous to its takeover of QuadPay, Zip has undertaken a $200m capital raising, administered through a series of issued convertible notes and warrants.

The liquidity boost is being provided by CVI investments, an affiliate of US investment firm Susquehanna International Group (SIG). The agreement with SIG involves $100m in convertible notes with a maturity date of five years. An exercise of warrants will provide Zip with an additional $100m.

The capital injection is to assist in Zip’s growth strategy within North America.

Equity researchers at Royal Bank of Canada (RBC) noted the acquisition would create a 30 per cent larger BNPL company.

“We think acquiring QuadPay is a better option than attempting an organic entry to the US,” RBC said.

“In particular, Zip looks well placed given its relatively diversified end market exposure across discretionary, essential and everyday categories.”

The takeover is estimated to take Zip’s total customer base to 3.5 million users globally.

Its major rival Afterpay has approximately 8.4 million active customers and is aggressively attempting to capture a majority market share within the US.

Afterpay in April said its US customer base had grown to five million users.

Mr Diamond said QuadPay’s virtual card solution technology was a major factor in the acquisition.

“The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution,” Mr Diamond said.

QuadPay co-founders and joint-CEOs Adam Ezra and Brad Lindenberg will join Zip’s global leadership team, with responsibility for building its US business.