Why Sweden’s iZettle offered to PayPal for $2.2 billion somewhat than IPO

The announcement simply 10 days in the past that Sweden’s iZettle was planning to go public provoked cheers amongst European tech boosters, however that pleasure proved to be short-lived. Instead of celebrating the rise of an impartial tech firm, we’re watching yet one more native startup be devoured up by a U.S. tech big.

In this case, the deep pockets belong to PayPal, which announced it is paying $2.2 billion for the Swedish fintech firm. That price ticket presents the primary clue as to why iZettle took the cash somewhat than pursuing the IPO, which was anticipated to offer the cost firm a valuation simply north of $1.1 billion.

iZettle cofounder Jacob de Geer penned a note explaining the decision, ticking off the same old containers about how the businesses have related cultures and visions and the way the deal will permit iZettle to go additional sooner.

“By joining the PayPal family, we’ll become iZettle with superpowers and jump on a fast track to realise our vision,” he wrote. “The opportunity to become part of PayPal was too good to pass up. Not only because of what it means for iZettle and for iZettle’s employees, but because of what we can offer to our merchants.”

That could grow to be true, although tech mergers as a complete usually have a tendency to start out off with such optimistic sentiments solely to run into sobering realities, as evidenced by a protracted historical past of failures. There’s all the time an opportunity that the iZettle-PayPal hookup might be an exception, however success is way from assured.

Given that iZettle is in 12 international locations in comparison with PayPal’s 200, the latter can actually assist it deal extra shortly with the assorted regulatory points wanted to develop into new geographies. But simply how iZettle might be built-in (or not built-in) with PayPal’s personal competing point-of-sale cost companies stays to be seen.

Still, the IPO possible posed even higher dangers for iZettle. On May eight, the company announced its intention to checklist on the Swedish inventory alternate however had solely supplied preliminary monetary particulars. In reality, iZettle had not revealed a extra detailed prospectus earlier than the PayPal deal was introduced.

Naturally, the numbers iZettle disclosed have been bullish. The firm is on monitor for $165 million in income this yr, up 60 % from a yr in the past, whereas losses seem like narrowing.

With that momentum, the corporate had stated it hoped to lift about $227 million with the IPO. But it hadn’t gotten round to detailing, as an example, how a lot of that may go to insiders who have been promoting shares, nor how a lot would go to the company treasury.

Speaking of which, iZettle raised a complete of $150 million in enterprise capital through the years, together with a round of $47 million just last December. But at the very least $83 million of that was debt funding. Between paying off that debt and probably watching some cash to go insiders, an IPO regarded lots much less like a potential company windfall.

Of course, the corporate was itching to get its arms on that cash, having watched one other U.S. competitor, Square, enter the U.Ok. market final yr and discuss up its European ambitions. With a market cap of about $22 billion, Square possible had the model consciousness and monetary assets to offer iZettle a great run for its core point-of-sale market.

The prospect of battling Square and PayPal for the hearts and minds and wallets of shops — and with far fewer monetary assets —  meant iZettle executives would have needed to do one hell of a promoting job to make the IPO successful, not to mention guarantee the corporate would proceed rising and attain profitability.

So when PayPal got here knocking, it’s no shock iZettle was keen to hear. The $2.2 billion price ticket will definitely make this one of many greatest European offers, although PayPal has nonetheless not detailed how a lot of that determine is money or inventory, or whether or not it contains assumptions of iZettle’s present money owed.

For iZettle’s half, the corporate seems to be retaining some independence, and de Geer will proceed to run operations in Stockholm. But European tech boosters must be content material with iZettle turning into yet one more important department of a U.S. tech firm.

“iZettle will become a center of excellence for PayPal’s in-store product and services offerings for small businesses going forward, which I’m really excited about,” de Geer wrote. “Creating a center of excellence in Stockholm with a global reach means a lot to me.”

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