July 2, 2015
An international remittance solution that has been doing really well (and is focused on digital channels especially Mobile) is Xoom. An international money transfer services that is listed on Nasdaq stock exchange and has been featured in LTP9 leaderboard. Xoom transferred more than $7 billion for its 1.3 million customers over the 12 months preceding last April, primarily on mobile devices between family and friends. In short, they made the big elephants in this space (Western Union and MoneyGram) dance.
Let me digress for a moment. For several years, Paypal has been the method of choice for freelancers in India, Philippines, China and elsewhere to get paid for the work assignments they do irrespective of the platform. This is where the line between international business payments and person to person payments was already getting blurred. Not only that, but if you asked some of these freelancers recently, they would say that there have been problems with Paypal (like in India) or that they found a better solution.
Before I go further and write about the strategic benefits that the combined entity can enjoy, let me first talk about the M&A team at PayPal and the brilliant job they have been doing. Firstly they acquired the emerging behemoth of payments "Braintree" in 2013. And Braintree in-turn had acquired the biggest millennial payments success story "Venmo" in 2012. That deal made sure Paypal stays on the top of the game even as its own innovation machinery is getting challenged by disruptors at a blazing pace. And now Paypal acquiring Xoom which is the poster child of modern international remittance using the digital channels is brilliant. This is classic, top notch, M&A deal delivery by Paypal's team. Good job.
Expected Strategic Benefits of the Xoom Acquisition as per Paypal
- Extends PayPal’s offering to its customers: Broadens PayPal’s consumer offering to its 68 million active U.S. customers by cross-selling Xoom’s services.
- Accelerates time-to-market: Xoom’s proprietary and fast funds-out network enables PayPal to enter this growing marketplace with a leading technology solution with strong presence in key international markets.
- Enables horizontal expansion into new markets: Allows Xoom to expand its portfolio of send-markets by leveraging PayPal’s wider international network.
- Delivers a strong technology platform: Xoom’s compelling and reliable technology platform and consumer experience are coupled with its excellent customer service.
According to Paypal's press release - PayPal, Inc. and Xoom Corporation announced a definitive agreement under which PayPal will acquire Xoom for $25 per share in cash or an approximate $890 million enterprise value. The transaction represents a premium of 32% over Xoom’s three-month volume-weighted average price and was unanimously approved by the Boards of Directors of both companies, as well as the Board of eBay Inc., PayPal’s parent company.
Dan Schulman, President of PayPal, said, Expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money. Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace. Xoom’s presence in 37 countries – in particular, Mexico, India, the Philippines, China and Brazil – will help us accelerate our expansion in these important markets.
John Kunze, President and Chief Executive Officer of Xoom, remarked, Becoming part of PayPal represents an exciting new chapter for Xoom, which will help accelerate our time-to-market in unserved geographies and expand the ways we can innovate for customers. Being part of a larger, global organization will help us deliver the best possible experience to our customers, while maximizing value for our shareholders.
Due to anticipated one-time integration costs, the completion of the transaction is expected to be slightly dilutive to PayPal’s non-GAAP earnings per share for FY 2016. PayPal intends to fund the transaction with cash on its balance sheet.
Upon closing of the acquisition, Xoom will operate as a separate service within PayPal. The acquisition is expected to close in the fourth quarter of 2015, subject to customary closing conditions, including Xoom stockholder approval, the expiration or early termination of the applicable pre-merger waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the receipt of certain consents relating to Xoom’s money transmitter licenses.
Holders of approximately 18% of Xoom's outstanding shares, including all executive officers and directors of Xoom and certain entities affiliated with Sequoia Capital, have entered into voting and support agreements with PayPal pursuant to which they have agreed to vote in favor of the transaction.
J.P. Morgan Securities LLC is acting as financial adviser to PayPal, while Sidley Austin LLP is acting as its legal adviser with regard to the transaction. Qatalyst Partners is acting as financial adviser to Xoom, while Goodwin Procter LLP is acting as its legal adviser.