Zip-Sezzle BNPL deal falls through as rising rates hit consumer finance firms

Zip-Sezzle BNPL deal falls through as rising rates hit consumer finance firms

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Australian buy-now-pay-later (BNPL) firm Zip Co Ltd dropped its plan to buyout U.S. rival Sezzle Inc, adding to the list of fallen deals as rising interest rates hurt consumer finance firms.

As part of terminating the deal, which is effective immediately, Sezzle would receive $11 million from Zip, the companies said in a joint statement on Tuesday.

The announcement sent shares of Sezzle tumbling down by about 33%, set for their worst day since March 2020, while Zip rose about 11% in early trade.

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In February, Zip had also sought to raise up to A$198.7 million ($133.80 million) in a stock issue alongside the buyout plan.

“We believe this could cause some discontent amongst investors who participated in February’s equity raise on the basis of the transaction’s expected synergies,” RBC Capital Markets analyst Wei-Weng Chen wrote in a note.

Zip cited “current macroeconomic and market conditions” as a reason for pulling away from the deal, after saying in June “the acquisition of Sezzle remains on track.”

BNPL firms have seen their market value rapidly shrink over the past months as interest rate hikes to tame supercharged inflation fueled concerns about a slowdown in consumer finance.

This has led Australia’s Latitude Group to pull back its buyout offer for Humm’s BNPL business, and fellow BNPL firm Openpay to pause its operations on the U.S. market.

Sezzle, which was valued at A$491 million by Zip while announcing the buyout in February, lost nearly 82% of its value to A84.9 million, as of Monday’s close.

“We remain dedicated to driving toward profitability and free cash flow and believe this (deal termination) is the best outcome for our shareholders,” Sezzle Chief Executive Officer Charlie Youakim said.

Zip said it continued to expect to deliver group profitability during FY2024.

($1 = 1.4863 Australian dollars)

(Reporting by Indranil Sarkar in Bengaluru; Editing by Rashmi Aich)

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