With Stripe and Advent reportedly walking away, PayPal needs to prove it can justify the valuation its board believes the company deserves.
First reported by Bloomberg on 28 August, the consortium is understood to have walked away after the two sides failed to agree on the value of the business. PayPal‘s board had rejected an offer of $60.50 per share in July as inadequate before discussions resumed.
Potential regulatory complications surrounding a transaction of this size were also noted as a factor in the breakdown of negotiations.
Neither PayPal, Stripe nor Advent has commented on the reports, though Payment Expert has contacted the companies for further comment.
Had the acquisition gone ahead, Stripe would have significantly broadened its reach outside the payments infrastructure and merchant services that make up the majority of its business.
PayPal would have brought its consumer network, an established digital wallet and Venmo’s peer-to-peer payments platform, whereas Stripe would’ve added additional scale across checkout, buy-now-pay-later and merchant payments.
Speaking to Payment Expert in July, Chris Jones, Managing Director at PSE Consulting, said the deal would bring together “a consumer-facing giant in PayPal and a B2B-focused infrastructure powerhouse in Stripe”.
“From a transaction volume perspective, the combined group would handle some $3.7trn annually, putting it on a par with the newly combined Global Payments and Worldpay, the largest merchant acquirer in the world,” said Jones.
PayPal’s valuation gap
Valuation has been the sticking point throughout both rounds of negotiations. PayPal rejected Stripe and Advent’s initial offer in July, believing the $53bn proposal and $60.50-per-share price didn’t reflect the value of the business.
At the time, PayPal shares were trading at $47.37, meaning the bid represented a significant premium to the market price. However, the offer was far below the heights PayPal reached during the pandemic-era boom in digital payments.
The company was valued at around $360bn at its peak in 2021, when its share price climbed above $300. Since then, PayPal has undergone a revaluation of its strategy as growth slowed and competitors in digital retail payments grew, alongside digital wallets and payments infrastructure players.
The gap between PayPal’s current valuation and its pandemic-era peak has made any acquisition price difficult. A bid attractive enough to win over shareholders risks looking generous relative to where the stock trades and a bid closer to the current market price risks undervaluing a company that once commanded a valuation several times larger.
PayPal has also faced pressure over the pace of product innovation and its ability to regain momentum against competitors, with the decline leading to changes at the board and management level.
Lores has to prove the board right
Enrique Lores was appointed President and CEO earlier this year after PayPal’s board found that the pace of transformation under former chief Alex Chriss hadn’t met expectations.
Lores officially took over in March with a mandate to accelerate change and bolster PayPal’s competitive position. Since then, he has worked to reorganise the company around three core operating units and simplify the wider business.
It was reported in June that PayPal is winding down its PayPal Ventures investment arm, and the company has also unveiled plans to generate at least $1.5bn in savings over the next two to three years.
On an earnings call in May, Lores said PayPal needed to accelerate “AI adoption” and “recommit to the fundamentals.”
AI was a key opportunity of the merger, according to Alexandra Mousavizadeh, CEO and Co-founder of Evident.
Speaking to Payment Expert in July, she explained that the Evident AI Index for Payments suggests that if Stripe and PayPal merged, the new entity would show enhanced AI maturity and top the industry rankings for AI talent and innovation.
“The combined group would add roughly 1,500 AI specialists and bring together PayPal’s long-standing investment in research and patents with Stripe’s technical depth, better positioning Stripe to challenge the current Index leaders, Visa and Mastercard,” she said.
Without that size or AI talent boost arriving through acquisition, the pressure is on Lores to deliver progress.
