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PayPal Holdings Inc. (NASDAQ:PYPL) issued 742,335 common shares each valued at $78.90 to the shareholders from iZettle as part of the original deal that was valued over $2Bn. The acquisition was completed on September 20th with operations of both companies being held separately until the UK Competition and Markets Authority could thoroughly review the deal. Currently with the stock trading around $87 a employees got a 10% return from the backdated stock to today’s value.
Merger Agreement in May
The initial deal was met with skepticism in May when iZettle was planning an IPO on NASDAQ with a valuation of $1.1Bn, but later that same month PayPal paid $2.2Bn for the firm. For anyone not familiar with iZettle, they are a payments processing company based out of Sweden, similar to Square Inc (NYSE:SQ). It should be noted that to date they have yet to turn a profit, with expectation to in 2020. The deal was originally pitched as a way to grow the customer base of PayPal and better compete with Square with the hardware and expertise offered by iZettle. Mergers like this are typically vested over multiple years in an attempt to keep talent, with this specific deal the employees won’t be able to fully realize their stock options for three years.
CEO Dan Schulman announced back in July that PayPal intends to spend roughly $3Bn per year on mergers and acquisitions, citing a “healthy balance sheet” for the company, with a market cap of over $100Bn spending $3Bn on acquisitions is not overly aggressive. Paying double the value of a company is questionable, though mergers and acquisitions typically do have to pay a premium over market price. We reported on the initial deal here.
PayPal Recent Performance
PayPal published their earnings last week for Q3, with consistent growth in line with guidance they had given previously, some of the highlights are below:
• $3.3BN in transactions
• 15% Y/Y growth in active accounts
• 24% Y/Y payment volume growth
• 2.58% take rate from transactions
• 54.9% transactional margin (profit percentage of take rate)
They have been lowering their reliance on Ebay transactions and cited global growth as the most important source of revenue, especially cross border shopping. The two countries that do the most online shopping are China and the United States, with a new round of tariffs being imposed soon the global online shopping economy could change so having a physical payment company like iZettle could help hedge PayPal for the short term.