https://www.forbes.com/sites/richardkestenbaum/2019/03/08/what-makes-a-great-acquisition-target/#15827fd52d7e1,135 viewsMar 8, 2019, 07:12amDigital Payment Company Splitit Offers A Lesson On What Makes A Great Acquisition Target
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If you haven’t spent many years doing mergers and acquisitions, the business can seem like a dark art. Offers to buy public companies seem to appear out of nowhere and buyers’ motivations are often opaque. I recently spoke with a company that jumps off the page as a great acquisition target and I’ll explain why. Please keep in mind that there isn’t only one set of reasons why a company is a good acquisition target. This is a classic case but it’s just one case.
The Company is called Splitit (profiled here by my fellow Forbes contributor, Pam Danziger). Their business is giving consumers an option to buy products and pay over time without charging interest to the consumer. Splitit works by maintaining a hold on a consumer’s credit card for the entire amount but actually charging only the current installment. That way, Splitit is assured that the consumer is good for the total price and Splitit’s system only works if the consumer has enough credit available to cover the full purchase price. Splitit pays the retailer the value of the entire sale, less an amount to account for the time value of money they’re paying out to the retailer before all the payments are collected from the consumer.
Splitit is an Israeli company with a headquarters in New York and they recently went public on the Australian Stock Exchange. (Both Israel and Australia are countries where installment payments are more common than they are in the US.) The big opportunity for Splitit now is to expand in the US which is by far its largest potential market. Splitit raised capital in an IPO in order to have the money it needs to expand marketing. Today Splitit has a total value in the market of about $150 million and raised about $10 million in its initial public offering.
Splitit has a number of much larger competitors but almost none of those do exactly what Splitit does. Afterpay is public in Australia and offers installment payments. It has a value in the market of about $3 billion. Affirm competes directly with Afterpay, is US-based, privately held, has raised almost $800 million and its most recent valuation was $1.8 billion. Klarna competes with them both, is a privately-held, Swedish-based company that has raised almost $800 million and was last valued at $2.5 billion. There are numerous other competitors including Blispay, Vyze, ZipMoney, FuturePay, Quadpay, Sezzle and others.
Splitit and all these competitors focus on online retail customers. They make a deal with the online etailer to put a button on the checkout screen that allows consumers to finance their purchase. Unlike most of its other competitors, Splitit does not lend the money to consumers. In putting a hold on their credit cards to ensure repayment, it is not actually a loan. Most important, Splitit believes that its technology to insert its service on a retail website and facilitate the transaction can withstand challenges to its multiple patents.
