Australian company's purchase of Minneapolis fintech Sezzle is off

The sale of Sezzle Inc., a Minneapolis fintech company, to a competitor has fallen through.

Sezzle and Zip Co., which is based in Australia, on Tuesday announced they mutually agreed to terminate a stock transaction that was initially signed in February.

In the months since, the market value collapsed at both companies, which provide buy-now-pay-later platforms for retailers and customers.

Investor perceptions soured on their buy-now-pay-later niche as the prospect of recession in the U.S. and other countries created more risk in the firms' customer base. As well, higher interest rates pushed up the cost of investment capital, which Sezzle and Zip depend on because they don't take deposits.

Under the $352 million acquisition deal that was to have closed this summer, Zip would have owned 78% of Sezzle.

"While we were excited by the potential of this transaction, our board and management team are laser-focused on our strategy and execution," Charlie Youakim, Sezzle's chief executive, said in a statement. "We remain dedicated to driving toward profitability and free cash flow and believe this is the best outcome for our shareholders."

Sezzle, which started in 2017 and has about 400 employees, went public on the Australian Stock Exchange in 2019. For a time in 2020 and 2021, investors valued Sezzle at more than $1 billion.

Zip will reimburse Sezzle $11 million to cover legal and accounting fees and other costs associated with the failed deal.

Sezzle currently has $71 million in cash on hand and on its line of credit, not including the $11 million reimbursement from Zip, according to preliminary second-quarter results.

For the three months ended June 30, Sezzle said it expects total income between $28.5 million and $29.5 million, an uptick compared with the same quarter in 2021, when total income was $27.8 million.

Between $415 million and $420 million in merchant sales were made through Sezzle's platform in the quarter, above the $411 million made through the platform during the same quarter in 2021.

Sezzle's stock, however, is currently trading at 26 Australian cents, down from A$2.85 in January.

Zip, meanwhile, reported revenue of A$159.2 million in its most recent quarter. As a combined company, Zip and Sezzle were expected to serve than 60,000 retailers and 8.8 million consumers.

"We believe that mutually terminating the merger agreement with Sezzle at this point is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment," Diane Smith-Gander, Zip's board chair, said in a statement.

Under the previous plan, Youakim would have become president and CEO of Zip's operations in the U.S., Mexico and Canada, and executive director and president of Sezzle.

Sezzle has more than 40,000 retail clients, including Target Corp.