Zip Co share price rockets 44% higher on U.S. expansion news

The Zip Co Ltd (ASX:Z1P) share price is rocketing higher on Tuesday after announcing its expansion into the US via an acquisition…

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The Zip Co Ltd (ASX: Z1P) share price has returned from its trading halt and rocketed higher this afternoon.

At one stage the payments company’s shares were up as much as 44% to $5.40.

They have since pulled back a touch, but are still up a sizeable 36.5% to $5.12.

Why is the Zip Co share price rocketing higher?

Investors have been fighting to get hold of the shares of the Afterpay Ltd (ASX: APT) rival after it revealed that it has entered into an agreement to acquire the remaining shares in New York-based buy now pay later provider QuadPay.

According to the release, the company has agreed an all-scrip deal. This will see QuadPay stockholders entitled to receive up to a maximum of approximately 119 million Zip shares, which will represent the equivalent of 23.3% of the issued share capital of Zip at completion.

This implies an enterprise value of approximately US$269 million or A$403 million, but will be accretive for Zip on both a total transactions volume (TTV) and revenue basis.

Management notes that the QuadPay acquisition builds on its global strategy and believes it is a compelling investment proposition for shareholders.

This is because QuadPay is one of the leading buy now pay later platforms in the United States – the world’s largest retail market, which is estimated to be worth US$5 trillion per year.

The company also notes that this acquisition will turn Zip into one of the world’s leading global buy now pay later players. 

If the acquisition completes, the company will have operations across the world in five countries (Australia, New Zealand, United States, United Kingdom, and South Africa). It will also have combined annualised TTV of $3 billion, annualised revenue of $250 million, 3.5 million customers, and 26,200 merchants.

Convertibles notes.

In addition to this, the company has entered into an agreement with CVI Investments, Inc., an affiliate of Susquehanna International, to raise up to $200 million by way of the issue of convertible notes and the exercise of warrants.

The convertible notes have an initial conversion price of $5.5328, which is a 47.7% premium to its last close price.

These funds will be used to help accelerate Zip’s growth in the United States and other core markets.

Zip CEO and Co-Founder, Larry Diamond commented: “We are delighted and excited to have the QuadPay team join the Zip family. As a strategic investor in the business, we have spent considerable time with the founders, Adam and Brad, and share a united vision of disrupting the outdated credit card with a digital, and fairer alternative.”

“The US is a critical part of our global strategy and vital as merchants increasingly look for a global payments solution. We have been impressed by QuadPay’s continued innovation. They were first to market with a virtual card solution in the BNPL space and have continued to evolve and innovate their offering. We look forward to this exciting new chapter in the Zip journey,” he added.

Shareholders will be able to vote on the acquisition and convertible notes at an extraordinary general meeting. Should they be given the go-ahead, management expects to complete both in the first quarter of FY 2021.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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