Why Sweden's iZettle was sold to PayPal for $ 2.2 billion instead of IPO



The announcement that the Swedish iZettle was going to go public only 10 days ago provoked cheers among the European technological drivers that were ephemeral. Instead of seeing the emergence of an independent technology company, another local enterprise was swallowed up by a giant of American technology.

In this case, PayPal announced that it is paying $ 2.2 billion for the Swedish fintech company. That price tag is the first clue as to why iZettle took the money instead of the initial public offering. It was expected that the latter would grant the payment company a valuation just north of $ 1.1 billion.

iZettle co-founder Jacob de Geer wrote a note explaining the decision, ticking the usual boxes on how companies had cultures, visions and could go even faster.

"By joining the PayPal family we will become an iZettle with superpowers and jump on a fast track to realize our vision," he wrote. "The opportunity to be part of PayPal was too good to pass up, not only because of what it means for iZettle and the iZettle employees, but also for what we can offer our merchants."

All this may be true, although technological fusions in general tend to start with such optimistic sentiments only to eventually encounter the realities of a long history of failures. There is always the possibility that the iZettle-PayPal connection is an exception, but success is far from guaranteed.

Since iZettle is in 12 countries compared to 200 for PayPal, undoubtedly, the latter can help you deal more quickly with the various regulatory issues needed to expand into new geographies. But it remains to be seen how iZettle will integrate (or not be integrated) with competing payment services from the PayPal point of sale.

Still, the IPO has probably represented even greater risks for iZettle. On May 8, the company announced its intention to list on the Swedish stock exchange, but only provided preliminary financial details. The company had not published a more detailed prospectus before the agreement with PayPal.

Naturally, the numbers released by iZettle were bullish. The company is on track to raise $ 165 million this year, 60 percent more than a year ago, while showing losses that seemed to be reduced.

With that momentum, the company said it expected to raise around $ 227 million with the IPO. . But he had not gone into detail, for example, how much of that could go to the initiates who were selling shares, and how much would go to the corporate treasury.

Speaking of which, iZettle has raised a total of $ 150 million in venture capital in recent years, including a round of $ 47 million just last December. But at least $ 83 million of that was debt funds. Between paying that debt and possibly seeing some money to enter, suddenly the IPO seems less a possible corporate windfall.

Of course, the company was anxious about that money having seen another US competitor, Square, enter the UK. market last year and talk about their European ambitions. With a market capitalization of around $ 22 billion, Square probably had brand awareness and financial resources to give iZettle a good run in its central point-of-sale market.

The prospect of fighting Square and PayPal for the hearts, minds and wallets of retailers, with much less financial resources, was going to demand that iZettle executives do a great job of sale to make your IPO a success, let alone continue to grow and achieve profitability.


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