PayPal is spending $890m of its $6bn war chest on a deal to buy Xoom, a money transfer company, ahead of its split with parent company Ebay later this month.
Shares in Xoom jumped 22% to $25.26 in after-hours trading when PayPal announced it
PayPal acquires Xoom as it enters mobile remittance market
would buy the San Francisco-based money transfer company.
The transaction at $25 per share in cash gives the company an $890m enterprise value, a 32% premium over Xoom’s three month volume-weighted average price – according to the FT.
Dan Schulman, the president of PayPal who is due to become its chief executive after the split, said the deal would help the company expand into the international money transfer and remittances market.
“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,” he said. “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.”
PayPal will split from its parent eBay formally on July 17, and its shares will begin trading on the grey market next week.
The deal will help boost PayPal’s international presence — at present, nearly two-thirds of its revenues are from the US and UK — and help with user growth. With 165m active customers, PayPal’s user growth has slowed but is still in the double digits.
The acquisition is an indication of how PayPal will spend its $6bn war chest as it begins life as an independent company. Under the terms of the split, PayPal will start out with $6bn in net cash, thanks in part to a $2.8bn alimony payment from eBay.
Xoom will continue to operate as a separate unit within PayPal. John Kunz, president and chief executive of Xoom, said the deal would help it accelerate its reach into “unserved geographies”.
Xoom has 1.3m active customers, who sent about $7bn across the service in the 12 months ending in March 2015. The company generated $159m in revenue in 2014, but posted a net loss on a GAAP basis of $26.3m.
Money transfer is becoming a hot area within financial technology start-ups, with London-based Azimo raising $20m on a valuation of $100m earlier this month, WorldRemit raising $100m on a valuation of $500m in February and TransferWise receiving $58m in venture capital funding in January.
Even companies outside financial services are becoming interested in peer-to-peer money transfer, with Facebook rolling out the ability to send money to friends through its Messenger app across the US this week.
The post PayPal acquires Xoom as it enters mobile remittance market appeared first on Payments Cards & Mobile.
