Stripe, alongside private equity firm Advent International, has submitted a joint proposal to acquire PayPal Holdings Inc. for $60.50 per share. This offer values PayPal at over $53 billion, as indicated by two sources familiar with the matter.
The proposal, presented earlier this month, is backed by around $50 billion in pledged loans from banks, according to one of these sources.
This offer comes with a 28% premium compared to PayPal’s closing price on Tuesday.
The sources chose to remain anonymous due to the confidential nature of the discussions.
Neither PayPal, Stripe, nor Advent offered any comments on the situation.
Reuters initially reported on the development late Tuesday.
The merger of Stripe, which is a leading payment platform for online merchants, and PayPal would create a dominant player in the global online payments market, jointly handling approximately $3.7 trillion in annual transactions.
This proposal follows an earlier approach made in April, according to sources.
Stripe and Advent are still waiting for a response from PayPal and are optimistic about continuing discussions soon.
As per the proposal, Stripe and Advent plan to co-own PayPal with equal stakes, rather than dividing the company, although it’s unclear if this strategy will yield a deal.
Recently, PayPal’s stock has seen an increase of nearly 17%.
Founded in the late 1990s, PayPal was among the pioneers of digital payments but has recently faced stiff competition from other payment options, especially as alternatives like Apple Pay and Google Pay have gained traction.
The company has struggled with slow growth and increased competition in recent years, diminishing much of its pandemic-era gains.
PayPal’s market capitalization, which reached about $360 billion in 2021, has plummeted to around $36 billion, meaning the company has lost over 40% of its market value in the last year.
Since assuming the role in March, PayPal’s CEO Enrique Lores has initiated significant changes to streamline operations and refocus on growth.
In April, the company segmented its operations into three divisions focused on checkout, consumer financial services via Venmo, and payments, initiating several leadership changes.
Despite the valuation premium, William Blair analyst Andrew Jeffrey expressed skepticism that PayPal’s new CEO would consider the offer sufficient, suggesting that if it’s just an initial bid, Stripe and Advent might raise their offer to around $70 per share.
The journey to becoming a payment processing titan
The strategic rationale for the merger is that Stripe largely caters to merchants, while PayPal has built a strong consumer base with over 430 million accounts and established direct-to-consumer payment functionalities.
TD Cowen analyst Brian Bergin noted that PayPal’s consumer capabilities could greatly enhance Stripe’s initiatives to develop its digital wallet services.
This potential deal would provide Stripe with direct access to a large consumer base and open avenues for future financial services expansion, an area PayPal is intensifying its efforts in.
Moreover, Stripe would benefit from Venmo’s peer-to-peer system and PayPal’s popular consumer checkout feature.
The synergy from combining Stripe and PayPal could increase the transactions processed on their platforms directly, thereby reducing reliance on traditional processors like Visa and Mastercard. This might allow both to save on transaction fees and enhance revenue per transaction.
The merger also aligns with Stripe’s aspirations in the stablecoin domain, providing them a vast consumer network that could facilitate broader acceptance of stablecoin transactions. Stripe has been making significant investments in its cryptocurrency branch, Bridge.
Payment transactions on a global scale
If completed, the potential PayPal acquisition would add to the recent mergers and acquisitions trend in the global payments sector as companies seek to adapt to rapidly changing financial technologies and the impact of artificial intelligence.
Payment firms are increasingly focusing on expanding their scale through M&A activity, looking into fast-growing sectors like cross-border and B2B payments as growth in traditional payment processing begins to slow down.
In a notable recent transaction, Global Payments agreed to acquire Worldpay for $24.25 billion, marking a complex deal with FIS and private equity firm GTCR facilitating the transaction.
There are also numerous smaller acquisitions occurring, such as Canadian payments company Nuvei’s $2.75 billion purchase of Payoneer Global, with backing from Advent International and other private equity investors.
Financial Times recently reported that Mastercard is contemplating selling a controlling interest in its UK payments arm, Vocalink, to a British bank amid concerns over major assets being held in U.S. ownership.
For the first quarter, PayPal’s revenue grew by 7% to $8.35 billion, surpassing the analysts’ average expectation of $8.05 billion, with total payments rising by 8% compared to a year ago, reaching about $464 billion.
Privately held Stripe stands as one of the industry’s most valuable companies. In February, an acquisition offer valued the company at $159 billion—a 70% increase from a similar stock sale just a year prior.
Founded in 2010 by brothers John and Patrick Collison, Stripe facilitates businesses in accepting payments, making payments, and automating financial processes.
