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…

| More on:
USA Investing

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

More on Share Gainers

A beautiful woman holds up one finger with one hand and has her hand on her waist with the other as she smiles widely as though she is very pleased about something.
Share Gainers

Why Chalice Mining, Damstra, Link, and Pinnacle shares are storming higher

These ASX shares are storming higher on Thursday...

Read more »

a man sits on his sofa loong at his phone and raises a fist to the air in happy celebration.
Resources Shares

Chalice Mining share price leaps 13% on new exploration results

The ASX resource explorer is using small footprint diamond drill rigs to minimise environmental impacts.

Read more »

A man in his 30s holds his computer underneath and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Share Gainers

Guess which ASX All Ords shares are serving up 15% gains today

Tech shares continue to lead the way on Wednesday.

Read more »

rising asx share price in food and consumer staples sector represented by happy face made from cut up banana
Share Gainers

Why Domino’s, EML, Talga, and Woolworths shares are pushing higher

These ASX shares are pushing higher on Wednesday...

Read more »

A graph ablaze with fire going up, indicating a fired up and surged share price
Share Gainers

These 3 ASX 200 tech shares are on fire today

Tech shares are broadly outperforming today following a strong lead from the US NASDAQ.

Read more »

A graphic showing a businessman running up a white upwards rising arrow symbolising the soaring Magellan share price today
Share Gainers

Why Regis Resources, Sayona, Woodside, and Xero shares are pushing higher

These ASX shares are on form on Tuesday...

Read more »

A GWR Group female employee in a hard hat and overalls with high visibility stripes sits at the wheel of a large mining vehicle with mining equipment in the background.
Resources Shares

Why has the Pilbara Minerals share price soared 57% in FY22?

How did the Pilbara Minerals share price perform in the financial year?

Read more »

A man with a scrappy beard and wearing dark sunglasses and a beanie head covering raises a fist in happy celebration as he sits at is computer in a home environment.
Technology Shares

How Brainchip shares gained 63% in a year when tech stocks nosedived

The computer hardware provider was once considered a meme stock. Is it fair dinkum now?

Read more »