Zip-Sezzle merger abandoned

The transaction, which was subject to regulatory approval and had been expected to be completed by the end of the September 2022 quarter, was valued at around $491 million.

The merger would have expanded Zip’s presence in the US market, taking the total active customer base of the combined business to 13.3 million and almost 130,000 merchants, with 8.8 million customers and 60,500 merchants based in the US.

However, the two companies announced on Tuesday (12 July) that they had “mutually agreed to terminate” their previously announced merger agreement, effective immediately.

In a statement, the Zip board said the decision had been taken “in light of current macroeconomic and market conditions”.

Sezzle will receive US$11 million (approximately $16.3 million) from Zip to cover its legal and accounting costs, along with other costs related to the transaction.

Zip said it remains “firmly focused on its strategic plan and accelerating its path to profitability” (which it expects to deliver during financial year 2024) adding that the US “remains a core market and area of focus”.

Diane Smith-Gander, chair of the Zip board, said: “We believe that mutually terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment.”

Charlie Youakim, co-founder, executive chairman, and chief executive of Sezzle, commented: “While we were excited by the potential of this transaction, our board and management team are laser-focused on our strategy and execution.

“We remain dedicated to driving toward profitability and free cash flow and believe this is the best outcome for our shareholders.”

As well as pulling back on the Sezzle deal, Zip also recently announced it would be slimlining its SME lending arm, Zip Business, and withdrawing its trade finance products, as it seeks to return to profitability.

Speaking to The Adviser last week, Matthew Abbott, Zip’s director of corporate affairs, stated: “Zip’s operating environment has changed significantly and in response we have refined our strategy in order to accelerate our path to global profitability. 

“With this in mind, we have made some decisions to reprioritise resources to focus on delivering sustainable profitability in our core ANZ market.”

BNPL at a turning point

The BNPL market has been facing difficulties in recent months, as rising inflation and cost of living eat into customers’ back pockets, leading to nervousness that bad debts may increase.

The value of several BNPL businesses – including Zip and Sezzle – has also been falling substantially.

For example, Zip’s share dropped from around $8.10 per share in July 2021 to around $0.53 per share now (correct at the time of writing), while Sezzle’s stock dropped from around US$6 ($8) in July 2021 to US$0.85 ($1.27) last week.

The sector is also coming under increasing regulatory scrutiny – with many calling for the BNPL market to be treated in a similar manner to other credit products.

Speaking at the Responsible Lending and Borrowing Summit in Sydney on Tuesday (12 July), the Assistant Treasurer and Minister for Financial Services, Stephen Jones MP (member for Whitlam), revealed that he would be soon “consulting on options with key stakeholders, including industry, consumer groups and regulators on how to improve the regulation of credit in Australia”.

“Australian consumers now have a plethora of credit products to choose from, which is a benefit to everyone confronting the current inflation spike,” he said.

“And within this classification of ‘credit products’ I include BNPL.

“This should not be controversial.

“If it walks like a duck and quacks like a duck, it’s a duck.

“BNPL products are unique and any future regulatory framework needs to reflect that.

“Which is why we will take a careful and deliberate approach that balances the need to protect consumers with encouraging innovation in our financial services industry.”

Mr Jones highlighted recent data from the Australian Finance Industry Association’s report on The Economic Impact of Buy Now Pay Later in Australia, which found that there are now 5.9 million active BNPL accounts and the sector now accounts for $11.9 billion of transactions per annum.

“Australians are clearly responding positively to a new and innovative credit products,” Mr Jones said.

“BNPL plays an important role in providing low cost and convenient credit to consumers.

“However, we must be mindful of the risks that may arise from innovation and ensure our regulatory frameworks remain fit for purpose in light of evolving technologies and business practices.

“We are carefully monitoring how other jurisdictions are approaching regulation.

“This includes the UK, which has also announced its intention to regulate BNPL as credit products, in a tailored way.”

[Related: Zip to wind down SME trade finance products]