PayPal buys P2P money transfer firm Xoom for $890M

PayPal buys P2P money transfer firm Xoom for $890M

02 JUL 2015

PayPal bought Xoom, a US firm that enables remittances either via mobile or online, as it tries to build an international presence ahead of its 17 July spin-off from parent eBay.

Xoom’s target market is migrants in the US who want to send money to friends and family internationally. The firm’s major payment corridors are from the US to Mexico, India, the Philippines, China and Brazil.

International remittances are a massive market where mobile competitors can make inroads against traditional providers.

In addition, PayPal hopes Xoom will enable it to expand into those major markets where it delivers remittances. At present, two-thirds of PayPal’s revenue comes from the US and the UK.

PayPal’s ownership of smaller payments firm Braintree gives it access to the latter’s Venmo app, which offers P2P money transfers within the US, serving a distinct market from remittances. Acquiring Xoom enables PayPal to reach an additional demographic.

The offer represents $25 for each Xoom share in cash, or approximately $890 million enterprise value. The transaction represents a premium of 32 per cent over Xoom’s three-month volume-weighted average price. It was approved by the boards of both companies.

Due to anticipated one-time integration costs, the completion of the transaction is expected to be slightly dilutive to PayPal’s non-GAAP earnings for 2016, the company said. It intends to fund the transaction with cash on its balance sheet.

PayPal starts life post-split from eBay with $6 billion in cash.

The acquisition is expected to close in the fourth quarter of 2015, subject to certain closing conditions, including Xoom shareholder approval and consent relating to its money transmitter licences.

Holders of approximately 18 per cent of Xoom’s shares, including all executive officers and directors and certain entities affiliated with Sequoia Capital, have vowed to back the deal.

Xoom has 1.3 million active customers, who sent $7 billion via the service in the 12 months ending March 2015. The company generated $159 million in revenue in 2014, but posted a net loss on a GAAP basis of $26.3 million.

Upon completion, Xoom will operate as a separate service within PayPal.

Author

Richard Handford

Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including...

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