This Company Could Be the Next Acquisition Target for PayPal Holdings Inc

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PayPal stock - This Company Could Be the Next Acquisition Target for PayPal Holdings Inc

Source: Via PayPal

Be wary of all buyout predictions — analysts predict about seven of them for every four acquisitions that actually transpire. In the case of Paypal Holdings Inc (NASDAQ:PYPL), an often-suggested tie-up with Europe’s Adyen makes a lot of sense.

It’s not a name most current or prospective owners of PayPal stock are terribly familiar with. Credit card acceptance middleman Square Inc (NYSE:SQ) is the odds-on buyout favorite for most investors getting the itch to see a deal get done.

There’s also no denying Square is a thorn in the side of PayPal’s “Here” technology, which can also turn a smartphone into a mobile card reader. It wouldn’t be crazy for PayPal to take that competition off the table while it can afford to do so.

Adyen, however, appears to align with more of the subtle hints PayPal’s executives have dropped over the course of recent months.

Schulman’s Got the Itch

In September of last year, Bernstein analyst Lisa Ellis opined that PayPal could make a multibillion dollar acquisition in the “coming months.” Here we are about six months later, and there’s still no deal.

That doesn’t mean an acquisition isn’t on the radar, though. Indeed, between the passage of time, the gradually dissolving relationship with eBay Inc (NASDAQ:EBAY), and reading between the lines of comments made by CEO Dan Schulman, it’s difficult not to suspect something may well be in the works.

Schulman’s telling comments materialized in an interview with Jim Cramer that took place last week. Schulman pointed out during the talk that:

“In North America, only 5 percent of small businesses export internationally. Eighty percent of small businesses on PayPal in the U.S. export internationally. So having a platform that’s open, that’s trusted, with guaranteed transactions, opens up the world to merchants, small business merchants and to consumers and that’s a tremendous benefit for everybody.”

Square and Stripe have both been posed as potential buyout candidates in the past (by Ellis), as has Scandinavian outfit Klarna. But if PayPal is indeed thinking internationally — and looking for scale — Adyen is arguably the most sensible bolt-on deal the company could make.

Why Adyen?

Adyen has been called the Braintree of Europe and is an amazingly flexible payments platform. It works with credit cards as well as Apple Pay and Google Pay, plus a handful of other payment means not entirely familiar to North Americans.

It also facilitates in-app payments quite nicely. If PayPal was looking for a one-stop solution that comes complete with counterparts to features available as PayPal-branded options, Adyen is it.

The comparison of Braintree and Adyen is also a curious one to PayPal stock holders, as PayPal acquired BrainTree back in 2013. That’s how it got peer-to-peer payment platform Venmo, which has been wildly successful.

It’s also noteworthy that Adyen is the very same company eBay intends to tap to displace PayPal as the preferred payment partner for the online-auction platform. Although the benefit of its relationship to PayPal is debatable, if PayPal secretly wanted to keep that relationship in place, owning Adyen would be a way to do it.

But if this particular buyout possibility is to become a reality, PayPal might want to move quickly. Adyen is reportedly mulling an initial public offering. If the company proceeds as expected, the $1.2 billion expected to be raised would value the whole company at a little more than $2 billion.

While being a publicly traded company wouldn’t inherently preclude an acquisition by PayPal, it could make it more difficult and possibly more expensive. It may also delay such a deal, if one is on the radar. It would be much easier and cheaper for PayPal to simply buy Adyen while it’s still privately held.

Bottom Line for PayPal Stock

Again, don’t hold your breath. Counting on buyouts is a bad investing approach, and PayPal stock holders could be on the wrong end of the trade anyway. It’s also going to be interesting to see if the reportedly impending IPO of Adyen accelerates the matter or quells it before it takes shape.

Whatever the case, if nothing else, a buyout is increasingly looking like PayPal’s best bet for decent growth going forward now that the North American market’s getting a little crowded — not to mention the overseas market. PYPL certainly has not been afraid of deal-making in the past.

Just an idea to keep in your back pocket and take a look at from time to time as the digital payment environment continues to evolve.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/this-company-could-be-the-next-acquisition-target-for-paypal/.

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