PayPal Acquires Fintech Startup -- WSJ
May 18 2018 - 3:02AM
Dow Jones News
By Ben Dummett and Peter Rudegeair
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 18, 2018).
PayPal Holdings Inc. has agreed to buy European
financial-technology startup iZettle AB for about $2.2 billion, a
move that would catapult the U.S. digital-payments giant into
hundreds of thousands of brick-and-mortar retailers around the
world.
The acquisition, the largest in PayPal's history, sets up a
showdown between the San Jose, Calif., company and Jack Dorsey's
Square Inc., which has built a big payments business catering to
coffee shops, flea-market vendors and millions of other small
businesses with physical locations that PayPal historically
overlooked.
Stockholm-based iZettle, which has been called the "Square of
Europe," builds devices and technology that nearly 500,000
businesses in around a dozen European countries, Mexico and Brazil
use to accept credit cards. Most of those countries are ones where
PayPal has a small presence already, and it plans to roll out
iZettle devices in some of its biggest markets, including the
U.S.
PayPal's goal is to give a more comprehensive offering to
retailers that want to sell products in stores and across digital
platforms, Chief Executive Dan Schulman said in an interview
Thursday, at a time when competition from Amazon.com Inc. and
traditional retailers is fierce.
"Helping small businesses compete with the giants in the market
really resonated for both of us," Mr. Schulman said. Combining
PayPal's services with iZettle's would allow the company to offer a
"full-service, one-stop-shop solution" to current and prospective
customers, he said.
The deal also would help PayPal offset the loss of one of its
largest sources of customers: eBay Inc., the online marketplace
that owned the payments firm until it was spun out as a separate
company in 2015. PayPal shares fell more than 12% earlier this year
when eBay, which had accounted for around one-fifth of PayPal's
2017 revenue, said it would start managing the payments flow of
buyers and sellers transacting on its website.
The shares have recovered much of that drop, and after they
soared last year, PayPal has a market value of more than $90
billion.
Meanwhile, Square has been moving into PayPal's turf. Square
Cash, a smartphone app that lets people send money and buy things
online, has amassed more than seven million users. Last month,
Square agreed to buy website builder Weebly Inc. for about $365
million in a deal that would give it a bigger footprint in
e-commerce. Square also counts former PayPal finance chief Roelof
Botha as a board member.
PayPal, which is around twice as old as Square, still has a big
size advantage. It processed $132 billion in total payment volume
in the first quarter of 2018, or more than seven times Square's
$17.8 billion of volume in the same period. iZettle, which had been
preparing an initial public offering, expects its 2018 payments
volume to be roughly $6 billion.
The rapid growth of cross-border commerce and the blurring of
the lines between online and offline sales has led to a frenzy of
deal making in the payments industry. Last year, Vantiv Inc. agreed
to acquire U.K. payments processor Worldpay Group PLC for $10.4
billion, while two private-equity firms agreed to buy U.K.
online-payments processor Paysafe Group PLC for $3.89 billion.
PayPal and eBay have had a mixed record when it comes to
payments deals. The 2013 acquisition of Braintree Payments
Solutions LLC for $800 million turbocharged PayPal's
mobile-payments acceptance tools and brought it popular digital
money-transfer service Venmo.
But last year's $238 million deal to buy bill-payments company
TIO Networks became a "black eye" for PayPal, its finance chief,
John Rainey, said at an investor conference this week. The company
decided to wind down TIO after discovering a data breach in TIO's
systems that potentially compromised the personal information of up
to 1.6 million users. TIO's systems were never integrated to
PayPal's.
Jacob de Geer, chief executive of iZettle, will continue to lead
that business and report to Bill Ready, PayPal's chief operating
officer. Mr. Ready joined PayPal as part of its Braintree
acquisition.
Mr. de Geer said in an interview that he decided to sell to
PayPal rather than pursue an IPO after "realizing that combining
forces was effectively giving my company superpowers."
The price is a lofty one at roughly 13 times iZettle's projected
2018 revenue of $165 million. Mr. de Geer and iZettle co-founder
Magnus Nilsson will receive a windfall when the deal closes as each
owned a nearly 9% stake in the company as of the end of 2016,
according to iZettle's most recent corporate filing. iZettle's
largest shareholder at that time was venture-capital firm Index
Ventures, which had a 12.5% stake, according to the filing.
Evercore advised PayPal on the transaction. JPMorgan Chase &
Co. advised iZettle.
Write to Ben Dummett at ben.dummett@wsj.com and Peter Rudegeair
at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
May 18, 2018 02:47 ET (06:47 GMT)
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