- The uncertainty in the market has forced Zip and Sezzle to call the shots on their acquisition plans.
- Zip pays Sezzle the sum of $11million to pay for costs associated with the purchase.
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The news: The Australian-based buy-now, pay-later (BNPL) business Zip has canceled its plans to purchase the US-based Sezzle in an announcement by the company.
Zip claimed that the the current market and macroeconomic conditions led to the decision to end the deal. Zip plans to Sezzle the sum of $11 million in order to pay for the costs of completing the deal.
The way we arrived at this point: Zip has been in discussions about acquiring Sezzle from at least January. It has acquired a number of worldwide BNPL startups in 2021, including Spotti Twisto along with Payflex–but could have been trying to purchase Sezzle to increase its presence in a market that is significant: US BNPL transaction volume nearly doubled in the last year and is projected to increase by 77.3 percent year-over-year (YoY) through 2022 according to insider intelligence forecasts.
Prior to recent Zip’s acquisition plans appeared to be on track despite the growing market uncertainty. Zip claimed it was in the process of purchasing Sezzle in the June 22 company announcement and detailed the steps it was taking to mitigate the impact of rising rates of interest and make into a profit, which included increases in customer fees and repricing of merchants.
But the widespread market volatility might have caused Zip to reconsider its strategy. Shortly before ending the Sezzle acquisition Zip stated that it was closing Pocketbook, its financial management application Pocketbook due to “significant changes” to its operating environment. It is planning to concentrate upon its primary business and ramp its efforts to improve profitability.
It’s worth watching Despite the decision to drop the acquisition Zip continues to expect to be financial success by the year 2024.
But the economic crisis could make it more difficult to achieve that. Even BNPL heavyweights such as Klarna are struggling to cope with the economic conditions. Klarna, the Swedish BNPL provider has recently completed an investment round with an $6.7 billion valuation, which is stark contrast to the $46 billion valuation. The company also eliminated 10 percent of its workforce in May. If Klarna — which is predicted to be the biggest share of US BNPL customers this year, based on our projections — is feeling the pinch, Zip likely isn’t immune too.
What does this mean what this means for Sezzle merging with Zip could have significantly increased Sezzle’s presence globally and its volume. Sezzle is available only exclusively in US and Canada and Zip’s acquisitions gave it an advantage throughout Africa, Europe, the Middle East, and its base market of Australia.
However, with the acquisition not on the table, Sezzle will likely need to increase its profitability to keep the company on the right track. This might involve a mix of expanding merchant partnerships as well as encouraging acceptance, which might not be an easy task considering the intense competitiveness in the BNPL market.