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

The Zip logo is seen on a smartphone in front of the same logo shown in this illustration taken on January 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

July 12 (Reuters) – Australian buy-now-pay-later (BNPL) Zip Co Ltd scrapped its plan to buy U.S. rival Sezzle Inc, adding to a list of failed deals as rising interest rates hurt consumer finance firms.

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

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

In February, Zip also sought to raise up to A$198.7 million (US$133.80 million) in a share issue with a buyback plan.

“We believe this could cause some dissatisfaction among investors who participated in the February capital raise based on the expected synergies of the transaction,” RBC Capital Markets analyst Wei-Weng Chen wrote in a note.

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

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

This prompted Australia’s Latitude Group to withdraw its bid to buy Humm’s BNPL business, and fellow BNPL firm Openpay to pause its operations in the US market. read more

Sezzle, which Zip valued at A$491m when it announced the buyout in February, had lost almost 82% of its value to A84.9m by Monday’s close. read more

“We remain committed to moving towards profitability and free cash flow and believe this (termination of the contract) is the best outcome for our shareholders,” Sezzle Chief Executive Officer Charlie Youakim said.

Zip said it still expects to achieve group profitability during the 2024 fiscal year.

($1 = 1.4863 Australian dollars)

Reporting by Indranil Sarkar in Bengaluru; Editing by Rashmi Aich

Our Standards: The Thomson Reuters Trust Principles.