PayPal acquires Swedish startup iZettle for $2.2 billion ahead of IPO

PayPal is buying Swedish fintech startup iZettle for $2.2 billion ahead of IPO. The company announced Thursday that it has reached a deal to buy payments start-up iZettle for $2.2 billion — the biggest acquisition in its history. The news came just after iZettle announced last week that it would list an IPO on the Nasdaq in Stockholm later this year.

“The acquisition of iZettle significantly expands PayPal’s in-store presence, strengthening PayPal’s platform to help millions of small businesses around the world grow and thrive in an omnichannel retail environment,” the company said in a press release.

Founded in 2010 by Jacob De Geer and Magnus Nilsson, iZettle is a mobile payments company that offers small businesses with portable point-of-sale solutions and free sales overview tools. Based in Stockholm, Sweden, iZettle revolutionized mobile payments in 2010 with the world’s first mini chip card reader and software for mobile devices. Today, small-business owners around the world use iZettle’s powerfully simple services to improve the speed and ease of payments at checkout, business management, sales analytics, customer engagement, and funding.

“Small businesses are the engine of the global economy and we are continuing to expand our platform to help them compete and win online, in-store and via mobile,” said PayPal President and CEO Dan Schulman. “iZettle and PayPal are a strategic fit, with a shared mission, values and culture—and complementary product offerings and geographies. In today’s digital world, consumers want to be able to buy when, where and how they want. With nearly half a million merchants on their platform, Jacob de Geer and his team add best-in-class capabilities and talent that will expand PayPal’s market opportunity to be a global one-stop solution for omnichannel commerce.”

This combination brings together iZettle’s in-store expertise, recognized brand and digital marketing strength with PayPal’s global scale, mobile and online payments leadership, and trusted brand reputation.

Upon closing, PayPal gains in-store capabilities in the following 11 markets: Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain and Sweden. PayPal also gains near-term in-store expansion opportunities into other existing PayPal markets, and acceleration of omnichannel commerce solutions in Australia, U.K. and U.S.

“Combining our assets and expertise with a global industry leader like PayPal allows us to deliver even more value to small businesses to help them succeed in a world of giants,” said iZettle CEO Jacob de Geer. “The combination of iZettle and PayPal will provide tremendous benefits to our merchants who will have access to an even wider range of tools to help them get paid, sell smarter and grow.”

iZettle expects to generate gross revenues of approximately $165 million USD in 2018, with approximately $6 billion USD of total payment volume (TPV) expected to be processed on its platform. The company has grown its revenues at a CAGR of approximately 60% from 2015 to 2017. iZettle expects to reach EBITDA profitability by 2020 on a standalone basis.

Once the acquisition closes, Jacob de Geer will continue to lead iZettle, which will operate as an integral part of PayPal’s merchant services offering, reporting to PayPal’s Chief Operating Officer Bill Ready. iZettle’s experienced management team, who have a demonstrated track record of scaling at pace, will continue running the business, ensuring continuity for customers, employees and partners. Upon closing, iZettle will become the European center of excellence for PayPal’s in-store product and services offerings.

The transaction is expected to be approximately $0.01 dilutive to PayPal’s previously communicated full year 2018 non-GAAP EPS. The transaction is expected to close in the third quarter of 2018. The completion of this transaction is subject to customary closing conditions, including regulatory approvals. The two companies will continue to operate independently until close. Once the acquisition is complete, PayPal will be in a better position to compete and fend off Square, iZettle competitor.

Evercore is acting as sole financial adviser to PayPal, and Skadden, Arps, Slate, Meagher & Flom LLP and Roschier are acting as its legal advisers with regard to the transaction. J.P. Morgan Securities plc is acting as sole financial adviser to iZettle, while Gernandt & Danielsson is acting as its legal adviser.