In the Australian across the ditchZip’s move to raise $267m to...

In the Australian across the ditch

Zip’s move to raise $267m to pay down debt is a signal that acquisitions are not on the agenda for the buy-now-pay-later provider, according to some analysts.

If the company was going to embark on deals, it would likely have kept its debt and used it to do so, because the loans it has are relatively flexible.

However, the latest raise by Zip makes it more attractive to a suitor, is one argument, because it now has no corporate debt, no convertible bonds and is growing at a rate of 40 per cent per annum in the United States.

Earlier, banks were considered a likely buyer, but most now expect one of the top four would be more likely to embark on a partnership than an acquisition.

All the focus for Zip right now is in the United States, where it has 70 per cent of its business and its product is only used by about 1 per cent of the country’s population compared to about 10 per cent in Australia where 2.5 million people are users.

As reported online on Wednesday, Zip had been selling shares in a book build with the floor price at $1.52 per share, ranging up to $1.56 per share.

The group’s plan is to raise $217m by way of a placement and $50m worth of shares are being offered as part of a Share Purchase Plan.

Working on the deal are Unified Capital Partners and Goldman Sachs.

The funds are being used to pay down its $130m of corporate debt, strengthen the balance sheet and reduce its interest rate expense.

The raise is at a discount of 5.3 per cent of the last traded price of $1.61.

Zip’s market value is $1.8bn after its share price has risen strongly in the past year.

Last year, its share price was around 31c and some suspected its future was hanging in the balance.

Zip said its full year normalised group cash earnings before tax, depreciation and amortisation is expected to be in the range of $22m to $25m, which will bring the cash EBTDA to between $67m and $70m for the year to June.

Underlying cash EBTDA will be between $77m and $80m compared to a $48m cash EBTDA loss of $48m in fiscal 2023.

It has increased margins, slashed costs by 20 per cent and staged an exit from over five markets such as the United Kingdom, Middle East and South Africa.

Helping Zip has been the collapse of smaller competitors and exits from the market by groups like Apple, Goldman Sachs and PayPal.

Its larger rivals are also charging more fees and taking a more rational approach to the business they are taking on.

Zip, run by former Barclays banker Cynthia Scott and chaired by Diane Smith-Gander, has about $1bn in annual revenue, six million customers and a large cost base.

It’s expected to make a statutory profit for the 2024 financial year.

Zip was subject to a merger with rival Sezzle in 2022, but the deal was called off.

Citi analysts said that the latest update showed Zip had out performed, with falling active customers being offset by larger monthly transacting users, but its bad debts at 4.7 per cent were higher than expected for Australia and New Zealand.