Zip’s Sezzle takeover too expensive: analyst
Zip is forking out a 22% premium for Sezzle when 25% of their customers overlap
Mentioned
KEY POINTS
- Zip and Sezzle have a 25% overlap in customers
- Analysts question whether or not the merger benefits can be realised
- The takeover plus $200m capital raising will dilute Zip by circa 40%
Zip (ASX: Z1P) is already facing mounting criticism for its proposed takeover of rival BNPL, Sezzle (ASX: SZL).
You can read more about the acquisition here.
Initial broker thoughts
Citi flagged the merger as an expensive customer acquisition strategy that raises more questions than answers.
Some areas of concern for the broker included:
Likelihood of $40-50m transaction synergies to be realised
High customer overlap (25%)
Introducing a fee for Sezzle users
Medium term revenue yield of 6-7%
The broker maintained a neutral rating and $3.65 target price.
The price target seems more like a formality given where Zip shares have come from rather than the state of the BNPL sector.
Post placement performance
Zip emerged from its trading halt this morning, raising $148.7m from institutional investors.
The placement was priced at $1.90 per share, a 14% discount to Zip's last closing price of $2.21 and represents 13.3% of the company's existing shares on issue.
Zip shares held up relatively well given the discount and size of the raising, closing -6.3% lower at $2.07.
23.6m shares were traded compared to a 20-day average of 8.7m (+270%).
Zip 12-month share price chart
