PayPal announced a major acquisition to acquire European-based payments firm iZettle. As the following TechCrunch article reports, this positions PayPal to better compete with Square for POS payments and as well as to expand its international reach.
PayPal is taking its biggest bet yet on point-of-sale transactions, small businesses and markets outside of the U.S. as it looks to raise its game against Square, Stripe and others in the world of payments: The company has confirmed that it is buying iZettle— the Stockholm-based payments provider commonly referred to as the “Square of Europe” — for $2.2 billion in an all-cash deal.
The deal — which is expected to close in Q3 2018 — will see iZettle’s co-founder and CEO Jacob de Geer stay on to lead iZettle. He will report to PayPal’s COO Bill Ready. Others in iZettle’s exec team will also stay on to run the business, which will become a “center of excellence” for in-store and offline payments in Europe, PayPal said.
The timing of the deal is notable: It comes on the heels of iZettle filing for an IPO earlier this month (just nine days ago, in fact) in its own bid to scale out its business: iZettle had planned to raise $227 million on the Stockholm Nasdaq exchange, which would have valued the company at around $1.1 billion.
From what I understand from sources, the two had been talking “for years.” I guess the IPO filing suddenly gave those talks a new kind of urgency. And maybe double so: The news was supposed to be announced on Friday, but after rumors started to leak out today the company has decided to come out with it officially.
PayPal itself has a market cap of around $94 billion and in its last earnings said it had $7.8 billion in cash, cash equivalents and investments — giving it ample funds for this deal.
PayPal is making a significant strategic move in buying iZettle, not only to compete at the POS level with Square, but also to gain an existing merchant base in Europe and Mexico. This also opens up a future opportunity for iZettle to enter the US market where PayPal already has very strong presence and brand recognition. Many of PayPal e-commerce customers have omnichannel operations so PayPal would be positioned to offer payments services at brick-and-mortar locations. Both PayPal and iZettle thrive in the market that represents the long tail of small merchants as well, so this will grow payment transaction volume as the takeover becomes operational. One more thing—this is a big deal for PayPal to digest, and there are always challenges with combining international organizations so don’t expect instant results, but this will be watched closely, especially its increasing competition with Square.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group