The big bang deal in payments
The cutting-edge tech group, Stripe, had been in hot pursuit of the relatively older fintech PayPal. Then Stripe brought in Advent International as a strategic partner and the payments start-up and private equity group launched a joint bid for PayPal in what would be one of the biggest deals of all time.
The $53bn bid is seen as a way to solve PayPal’s biggest problem, which is that at online checkouts it is losing market share to Google Pay and Apple Pay, which is embedded on hundreds of millions of iPhones.
A takeover would align PayPal, one of the largest independent fintechs, with Stripe, a tech start-up that hit a $159bn valuation earlier this year, with a value proposition that could challenge the likes of Apple and Google.
People involved see the deal effort as not a sure thing and potentially a long shot. There are no signs PayPal has engaged with the offer.
The bidders will have to convince PayPal to play ball even as the company’s stock is at multiyear lows (before its shares rose on this week’s news of the bid), and recently appointed chief executive Enrique Lores pursues a turnaround.
Stripe, the payments processor led by brothers Patrick and John Collison, has been repeatedly tipped as a potential initial public offering candidate, though John Collison has said the company is in no rush to list.
Adding PayPal would bring Stripe a consumer-facing checkout brand with more than 400mn users as well as its payments app Venmo.
For its part Advent has a deep record in payments companies, having previously backed Worldpay, Vantiv and Nexi. Advent and Bain bought Worldpay in 2010 and made as much as 5.4 times their money when the group went public in 2015.
While the PayPal acquisition is in a preliminary stage, there’s a scenario in which Lores would be heavily incentivised to take a deal in the coming months.
A takeover of this size could attract a who’s who in other forms of financing that could round out an already formidable dealmaking partnership. It will also have to ultimately be on friendly terms.
Whatever happens, this could be a harbinger of deals to come. One private equity executive told DD that new tech start-ups buying established tech companies is a theme we should expect to see again. The newcomers may find that M&A is the most effective way to build a customer base.