Zip and Sezzle in merger talks as BNPL consolidation heats up

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Buy now, pay later Operator Zip Co is in talks with rival Sezzle over a possible takeover, as specialist players in the industry come under pressure to consolidate to compete with global heavyweights.

The two ASX-listed BNPL companies confirmed on Tuesday that they have entered into preliminary merger talks on a potential acquisition by Zip, following a report in The Australian on the talks.

Zip Co was founded by Peter Gray and Larry Diamond in 2013 and has been the subject of growing merger speculation since US fintech Square bought Afterpay last year for $39 billion.Credit:Dominique Lorrimer

Although it is still in its infancy and both parties have stressed that a deal is by no means certain, Zip has also signaled that it is open to acquisitions that would accelerate its growth on key markets. Sezzle is focused on the United States, which is also Zip’s most important battleground, as it and rivals such as Afterpay jostle to pinch traditional bank customers.

“Zip is always interested in pursuing options that are in the best interests of shareholders; however, discussions with Sezzle are preliminary in nature and there is no certainty that the discussions will result in a transaction of any kind,” Zip said.

“Zip’s Board of Directors remains committed to ensuring that any transaction delivers shareholder value and will always be disciplined in its assessment of potential opportunities. He will only pursue transformational transactions that help accelerate the achievement of Zip’s broader strategic goals, such as increased scale in core markets, enhanced customer and merchant propositions, and a faster path to profitability through to significant synergy opportunities.

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Zip Co was founded by Larry Diamond and Peter Gray in 2013 and has been the subject of growing merger speculation since US fintech Square bought Afterpay last year for $39 billion. Sezzle, founded by Charlie Youakim, listed on the ASX in 2019, and has positioned itself as an entry point for young consumers into financial products.

Zip shares rose 4% to $3.42 in early trading, while Sezzle shares jumped 19% to $2.55.

BNPL businesses allow customers to take out short-term interest-free loans, and the model became more common in 2021 as established players such as PayPal, Commonwealth Bank and Citi entered the industry. The threat of competition from deep-pocketed banks and tech players has prompted predictions that smaller BNPL operators such as Zip will need to consolidate to stay competitive.

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