The Zip Co Ltd (ASX: Z1P) share price has been a very strong performer again on Wednesday.
In morning trade the payments company jumped a further 30% to a record high of $6.74.
This means the Zip Co share price is now up a massive 81% over the last two trading days.
Why is the Zip Co share price up 81% in two days?
The catalyst for this strong gain was a major announcement by the buy now pay later (BNPL) provider on Tuesday.
That announcement reveals that Zip Co has entered into an agreement to acquire New York-based buy now pay later provider QuadPay. This deal will see the company go head to head with Afterpay Ltd (ASX: APT) in the United States market.
What is QuadPay?
QuadPay is a leading, high growth, instalment provider disrupting the credit card industry. It has a strong focus on innovation and customer centricity.
It has 1.5 million customers and 3,500 merchants on its platform. From these it is currently generating annualised total transaction value of over $900 million and annualised revenue of $70 million.
As with Afterpay, QuadPay splits purchases into four interest free repayments over a period of six weeks.
How is Zip Co funding the deal?
Zip Co intends to fund the deal through the issue of shares. If shareholders vote in favour of the acquisition at an upcoming extraordinary general meeting, the company will issue approximately 119 million Zip Co shares to QuadPay stockholders. This 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.
That won't be the only thing shareholders are voting on. To support its expansion into a U.S. retail market estimated to be worth $5 trillion per year, the company intends to raise funds via the issue of convertible notes.
Zip Co 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. These convertible notes have an initial conversion price of $5.5328, which was a 47.7% premium to Friday's close price.
Is it too late to invest?
I think this acquisition is a big positive for Zip Co and the U.S. market could be a key driver of growth for the company in the future.
However, although I'm a big fan of the company, I feel its shares are looking fully valued now after this strong gain. As such, I would class Zip Co as a hold until it starts to demonstrate that it can crack the U.S. market like Afterpay has.
