Zip raises $120 million via an institutional placement with Shaw and Partners appointed as a Broker News17 Dec 2020

Buy now, pay later lender Zip is putting the foot down on its global expansion and chief executive Larry Diamond says the board is acutely aware of execution risk as it ponders entering new markets in Europe and the Middle East.

 

Zip said on Thursday it had raised $120 million via an institutional placement and was seeking a further $30 million via a share purchase plan.

 

While the majority of the new funds will be deployed to the United States to support the rapid growth of Quadpay, which it purchased in September, $35 million of the additional growth capital will go to broadening its global footprint.

 

This includes investing in minority stakes in Spotii, a buy now, pay later player based in the United Arab Emirates, and Twisto, a payments provider in the Czech Republic and Poland that has passport licensing rights in the European Union. It has not disclosed the size of the investments.

 

Zip told the ASX on Thursday morning the capital raising, first reported by The Australian Financial Review's Street Talk column, was oversubscribed. It was fully underwritten by Merrill Lynch with Shaw and Partners broker. Citi analyst Siraj Ahmed flagged the potential for a Zip capital raising in a report last week.

 

Zip said it has set up a team of 25 to scout for further acquisitions. Mr Diamond described the investments in Spotii and Twisto as “small equity bets” that would not require any day-to-day involvement from Zip. Zip and the companies will help each other on global retailer relationships and strategy, “and if the goals align, there will be an opportunity to do more with them,” he said.

 

Analysts say execution risk could become a big challenge for Zip. “While we acknowledge the first/early mover advantage in entering new markets, we are concerned that Zip could be taking on too much given the launch of ‘Tap & Zip’ in Australia, expansion into US and UK, as well as the launch of the SME offering,” Mr Ahmed said on December 9.

 

Mr Diamond said Zip’s growing global remit is a key issue at board level, but the offshore strategy reflects that it cannot run multiple markets from Australia. Zip will allow local founders to run their companies but “if we can make the boat go faster, we will lean in,” he said.

 

Spotii was co-founded last year by Ziyaad Ahmed, previously a senior analyst at Afterpay in the US. It has recently launched into Saudi Arabia.

 

Twisto, founded in 2013, counts ING Ventures as a shareholder and raised €14 million last year to push further into Europe.

 

Zip's expansion into Europe comes after Afterpay bought Spanish credit provider Pagantis for around $82 million in August.

 

Zip will use $15 million of the new funds to support its acquisition of new merchants and customers in the UK, where it has just begun operations. Zip has struck distribution partnerships with Stripe and BigC in the UK where is has 25 staff.

It will use $12 million in Australia, where Zip is entering specialised small business lending.

 

Last week, it announced a deal with Facebook to fund advertising for SME businesses on Facebook, backed by the social media giant. Zip also has a small business product offered to merchants that sell through eBay. Mr Diamond said if Zip was able to deliver in Australia it could potentially extend them to the US.

 

Zip also said this week its retailer network is growing and it would offer its instalment product at Harvey Norman, taking on Latitude Financial, which has had a 20 year partnership with the retailer and launched LatitudePay in the buy now, pay later space.

 

Zip raised the new capital at $5.34, a 4.1 per cent discount to Wednesday’s closing price. Zip will issue 22.5 million new shares representing 4.3 per cent of its existing shares on issue to raise the $120 million.

Shares opened stronger on Thursday, and were up 4.8 per cent at $5.84 after 40 minutes of trading, but retreated $5.64 by mid-afternoon.

 

The share purchase plan for the additional $30 million is expected to open on January 4 and close on January 13.

 

The slide deck accompanying the raising said Quadpay customers had risen to 2.8 million in November and the platform was processing $264 million of sales in November; both numbers are more than 200 per cent higher than November 2019. There were 2.8 million downloads of the Quadpay app in November.

 

Zip's US growth comes as another ASX-listed buy now, pay later player, Openpay, said on Wednesday it would enter the US market and appointed Brian Shniderman as US CEO and global chief strategy officer from Deloitte.

 

Afterpay said earlier this week it hopes a local deal with eBay can be rolled out in the US to help expand its footprint among users of US retailing platforms.

 

Another ASX listed player, Sezzle, which operates in the US and has just launched in Canada, said earlier in December it is continuing to grow, albeit at a lower rate than Afterpay and Quadpay.

 

Meanwhile, Payright, which had 34,000 customers and 1,800 active merchants at the end of June, is set to list on December 23, after raising $20 million that would deliver it a market cap around $100 million.

Zip’s market cap is $2.93 billion while Afterpay has soared to $32 billion with shares trading at record levels this week to bring the market leader into the ASX top 20 stocks.

 

Article source: AFR, 17 December 2020

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