Zip Co acquisition spree of PartPay and QuadPay to assist global launch

Buy Now Pay Later (BNPL) business Zip Co (ASX: Z1P) is set to widen its horizons and effectively burst into the global marketplace by securing a string of acquisitions that will enable the billion-dollar company to make a mark in four strategic markets.

Zip is currently a leading player in the digital retail finance and payments industry, offering point-of-sale credit and digital payment services to the retail, education, health and travel industries.

It already operates under the Zip Pay, Zip Money and Pocketbook brands but will now seek to up-scale its level of service and market coverage.

Earlier today, Zip announced that it had finalised an agreement to acquire the entirety of global instalment technology platform PartPay for a total of NZ$65.8 million (A$62.4 million) with New Zealand, United Kingdom, United States and South Africa the intended geographies to be commercialised.

PartPay specialises in conducting credit and ID checks with the acquisition touted to provide proprietary risk technology, optimised costs and top-line growth that will ultimately grow revenues and boost Zip’s existing platform.

Zip said it will be pay NZ$50.8 million (A$48 million) up front with a further NZ$15 million (A$14.2 million) potentially being paid based on certain prescribed performance milestones being achieved during the next two financial years.

The total maximum consideration of NZ$65.8 million will be paid via the issuance of new fully paid ordinary shares in Zip which will, therefore, require shareholder approval at the company’s forthcoming extraordinary general meeting.

Zip said it expects to complete the PartPay acquisition by the end of October 2019.

QuadPay addition

The deal announced today also supplements a concurrent move to acquire a 15% stake in US-based company QuadPay for US$11.4 million (A$16.8 million). As part of a multifaceted ownership structure, Zip’s holding in QuadPay will rise to 15% given that PartPay also has a stake in QuadPay.

QuadPay is a high growth instalment provider with a strong US presence, enabling consumers to pay in instalments both online and in-store.

The series of acquisitions allows Zip to obtain a direct market presence to an addressable market of at least 450 million people and almost US$6 trillion in total market size.

With PartPay and QuadPay expected to be approved by shareholders, Zip has also secured a 25% stake in PayFlex, a South African BNPL company that creates an opportunity in one of the fastest-growing regions for digital services adoption, and a region that has the most spare capacity: Sub-Saharan Africa.

“This transaction marks the beginning of Zip’s global expansion story. Whilst we see significant upside in the core Australian business, we feel the timing is opportune to begin investing abroad as we seek to build a global payments business,” said Zip chief executive officer and managing director Larry Diamond.

“PartPay has proven experience swiftly launching their technology in four different markets, and the potential for many more. There is clear and strong alignment between PartPay’s and Zip’s philosophy on responsible credit, and we look forward to working with PartPay’s highly capable management team as we grow our market share in New Zealand and expand into the United Kingdom,” he added.

With the PartPay acquisition expected to be sewn up in October, Zip’s additional investment in QuadPay is expected to be finalised by no later than 27 September 2019.

Digital global sprawl

Zip said the PartPay deal will provide it with a portable platform, a significant instalment player in New Zealand including integration with one of the country’s leading retail groups, The Warehouse Group.

Furthermore, PartPay is set to secure an early-stage, fully operational UK subsidiary supported by a local team that’s “ready to scale”.

Despite being established for just over two years, PartPay has already amassed over 110,000 customers, spread across 250,000 instalment plans and is integrated into over 1,000 retailers including Spark, currently New Zealand’s largest telecommunications provider.

“The NZ business complements Zip’s Australian merchant base and aligns strongly with Zip’s core strategy of bringing customers and merchants together via a fair and valued payments experience,” the company said.

This morning’s acquisition news nudged Zip shares 2.7% up to $3.09, valuing the company at around A$1.1 billion by market capitalisation.