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Confidential. ASSESSMENT OF SELECTED ACQUISITION OPPORTUNITIES.
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e-commerce. platform. Integrated payment. processing.
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Executive summary How does each opportunity fit within PayPal’s objectives? Roadblocks Financial impact Strategic rationale √ Expand SMB value proposition √ Integrated e-commerce with subscription solutions model and bundled payments √ Defensive move > Accretive to growth > Likely dilutive to EPS × Significant takeover premium × Broad universe of potential interlopers √ Blue chip global merchants √ Strengthen presence in Europe and fast track move into Asia √ Strong synergy potential √ Defensive move for Braintree > Accretive to revenue growth, little impact on margins > Can be fully financed with cash on balance × Likely need to pre-empt an IPO process × Broad universe of other interested acquirers √ Expand value proposition to developers √ Strong synergy potential √ Defensive move for Braintree > Difficult to assess: Stripe does not publish financials > Can be fully financed with cash on balance × Willingness of key people to sell × Broad universe of other interested acquirers √ Strength in point-of-sale to US SMBs √ Strong synergy potential with PayPal Here √ Defensive move > Accretive to growth > Likely dilutive to EPS × Lack of international presence √ Add scale to PayPal Here in Europe > Difficult to assess: iZettle does not publish financials but business is small compared to PayPal or even Square > Can be fully financed with cash on balance × Value proposition does not extent beyond innovation in point-of-sale terminals √ Integrated payments > PayPal trades at a significant premium and can finance a large portion of the deal with cash on balance × Appetite to own a portfolio of ISVs × Direct distribution model 3.
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Market stats. Enterprise value $14bn - - $21bn - $22bn.
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Confidential. III. E-commerce platform:. Acquisition of Shopify.
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Key takeaways An acquisition of Shopify would make a lot of sense strategically and remains achievable financially despite strong recent share price performance.
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Company overview The leading omni-channel commerce platform Source: Company disclosure, Capital IQ. Market data as at 20-Mar-18. (1) Peers include FIS, First Data, Fiserv, Worldpay, Cielo, Global Payments, TSYS, ACI Worldwide, VeriFone, EVERTEC, Wirecard, Igenico, Worldline. TOP SHAREHOLDERS KEY MANAGEMENT Tobi Lütke Founder and CEO Russ Jones CFO (1) SHARE PRICE PERFORMANCE (LTM, REBASED) COMPANY OVERVIEW Tobi Lütke Founder and CEO Gail Goodman Director Robert Ashe Lead Independent Director Jeremy Levine Director Steven Collins Director John Phillips Director BOARD OF DIRECTORS 80 110 140 170 200 230 260 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 PayPal Shopify Payment Peers +128% +90% +32% Rank Shareholders Style % 1 FMR Growth 11.5% 2 Lütke, Tobias - 8.6% 3 Coatue Aggressive Growth 7.3% 4 T. Rowe Price Growth 7.3% 5 Klister Credit - 4.4% 6 Phillips, John - 4.4% 7 Sands Capital Aggressive Growth 3.7% 8 McKean, Bruce Growth 3.6% 9 Whale Rock Capital Aggressive Growth 1.7% 10 Abdiel Capital Aggressive Growth 1.6% Total Top 10 Shareholders 54.3% Shopify trading 19E EV/EBITDA 163.1x 19E P/E 260.6x > The Shopify platform enables merchants to develop and design online stores; manage orders, product catalogues and inventory; sell products across numerous social channels (Facebook, Pinterest, etc.); automate marketing campaigns and search engine optimization; process payments and shipping; synchronize retail stores through an integrated point- of-sale system; facilitate credit advances; and analyze operations through analytics tools > Shopify’s revenue model consists of subscription solutions (45% of total revenue, related to e-commerce applications) and merchant solutions (55% of total revenue, primarily payments) > Shopify has a customer base of over 425,000 SMB merchants and an ecosystem of over 12,000 partners 7.
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Strategic rationale PayPal's acquisition of Shopify would make sense strategically.
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Growth. (FY18E-20E). Adj. EBITDA. margin(1). Geographic.
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Financial impact analysis (contd.) Illustrative takeover premia and implied acquisition multiples.
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Financial impact analysis (contd.) Can PayPal make a deal work?.
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Confidential. IV.E-commerce platform:. Acquisition of Adyen or Stripe.
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> PayPal's acquisition of Adyen would make a lot of sense strategically.
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Company overview The payments platform of choice for fast-growing businesses.
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Strategic rationale PayPal's acquisition of Adyen would make a lot of sense strategically.
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Financial impact analysis Outside-in financial forecasts.
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Growth. (FY18E-20E). Adj. EBITDA. margin(1). Geographic.
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Financial impact analysis (contd.) Hypothetical valuation range and implied transaction multiples.
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Stripe The payments platform of choice for startups.
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Confidential. I. Point-of-sale capabilities:. Acquisition of Square.
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Key takeaways Even though an acquisition of Square would make a lot of sense for PayPal, it would be a much more expensive move today than it would have been a year ago.
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80 130 180 230 280 330 380 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 PayPal Square Payment Peers +249% +90% +32% Company overview A leader in point-of-sale solutions Source: Company disclosure, Capital IQ. Market data as at 20-Mar-18. (1) Average of peer performance: FIS, First Data, Fiserv, Worldpay, Cielo, Global Payments, TSYS, ACI Worldwide, VeriFone, EVERTEC, Wirecard, Igenico, Worldline. (2) Visa not included in top-10 shareholders. SQUARE’S STRONG SHARE PRICE APPRECIATION MEANS THAT IT HAS BECOME AN EXPENSIVE TARGET (LTM, REBASED) COMPANY OVERVIEW KEY MANAGEMENT 98% FREE FLOAT, OF WHICH 16.7% IN HANDS OF JACK DORSEY AND VISA OWNS 1.1%(2) Jack Dorsey Chief executive officer Sarah Friar Chief financial officer BOARD OF DIRECTORS Jack Dorsey Chairman Naveen Rao Director Mary Meeker Indep. Director Randall Garutti Director David Viniar Indep. Director Ruth Simmons Indep. Director James McKelvey Director Roelof Botha Indep. Director Anna Patterson Director Paul Deighton Indep. Director (1) > Hardware products include magstripe readers (magnetic stripe card transactions), contactless and chip readers (NFC and chip card), Square Stand (iPad to be used as a point-of-sale solution), and Square Register which combines Square’s hardware, point-of-sale software, and payments technology, as well as managed payments solutions > Software products include Square’s point-of-sale software, the Square Cash app (send, store, and spend money), and Caviar (a food ordering platform for restaurants) > Square Capital facilitates loans to merchants based on real-time payment and point-of-sale data (partnership with Celtic Bank) Rank Shareholders Style % 1 Dorsey, Jack - 16.7% 2 Vanguard GARP 6.6% 3 McKelvey, James - 5.4% 4 FMR Growth 5.3% 5 Sequoia Capital Growth 4.0% 6 Capital Research Growth 3.9% 7 BlackRock GARP 3.4% 8 Khosla Ventures Growth 3.3% 9 Allianz AM GARP 3.2% 10 Goldman Sachs Growth 1.5% Total Top 10 Shareholders 53.1% Square trading 19E EV/EBITDA 50.8x 19E P/E 72.4x 22.
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Strategic rationale PayPal's acquisition of Square would make a lot of sense strategically.
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Growth (FY18E-20E) Adj. EBITDA margin(1) Geographic Split (Revenue) Financial impact analysis A combination would enhance PayPal’s growth profile and increase its market share in US point-of-sale Source: Capital IQ, company reports (1) Adj. EBITDA excludes the effect of stock-based compensation. PayPal Square > Square’s strong revenue growth is starting to show in its bottom line and will enhance PayPal’s growth profile in a combination > Square is expected to deliver significant margin improvements by 2020E > Uncertainty on forecasts however makes it difficult to draw a conclusion > Square is only available in the major Anglophonic nations (US, Canada, Australia, UK, Ireland) and Japan > PayPal has a strong presence in the US and EMEA and a more modest one in APAC Combination Comments 16% 18% Revenue Net Income 27% 58% Revenue Net Income 17% 22% Revenue Net Income 27% 27% 27% 2018E 2019E 2020E 19% 24% 29% 2018E 2019E 2020E 26% 27% 27% 2018E 2019E 2020E 54% 11% 35% US UK Other 96% 4% US Intl 60% 40% US Intl 24.
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Financial impact analysis (contd.) Illustrative takeover premia and implied acquisition multiples.
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Financial impact analysis (contd.) Can PayPal make a deal work?.
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iZettle – An alternative to Square in point-of-sale “the Square of Europe”.
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Confidential. II. Integrated payment processing:.
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Company overview A leading card processor and e-commerce service provider with deep integrations into key verticals Source: Company disclosure, Capital IQ. Market data as at 20-Mar-18. (1) Peers include FIS, First Data, Fiserv, Worldpay, Cielo, Global Payments, TSYS, ACI Worldwide, VeriFone, EVERTEC, Wirecard, Igenico, Worldline. TOP SHAREHOLDERS KEY MANAGEMENT BOARD OF DIRECTORS Jeffery Sloan CEO Cameron Bready SVP & CFO (1) SHARE PRICE PERFORMANCE (LTM, REBASED) COMPANY OVERVIEW Rank Shareholders Style % 1 T. Rowe Price Growth 10.6% 2 Vanguard GARP 10.5% 3 Wellington Growth 9.8% 4 BlackRock GARP 7.1% 5 FMR Growth 5.8% 6 Vista Equity Growth 4.0% 7 State Street GARP 3.8% 8 Artisan Growth 3.6% 9 Massachusetts Fin. Serv. Growth 3.5% 10 JP Morgan AM GARP 2.3% Total Top 10 Shareholders 61.1% William Jacobs Chairman Jeffrey Sloan CEO Robert Baldwin Director John Bruno Director Mitchell Hollin Director Ruth Ann Marshall Director John Partridge Director William Plummer Director Alan Silberstein Director 80 110 140 170 200 230 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 PayPal Global Payments Payment Peers +50% +90% +32% Global Pmnts Trading 19E EV/EBITDA 13.7x 19E P/E 19.4x > Global Payments’ primary solutions include Integrated Payment Solutions, ecommerce & omni-channel, and gaming – Integrated Payment Solutions provides technology that is integrated into business software either owned by Global Payments or a partner. IPS is distributed through OpenEdge (North America), Ezidebit (APAC), ACTIVE Network (for event organizers and fitness), Education Solutions (for Education system), and Point-Of-Sale Solutions (for hospitality & retail) – Global Payments’ e-commerce and omni-channel businesses are sold globally to customers of all sizes – The company also offers a suite of cash access solutions, such as cash advances and check processing in the gaming market in North America 29.
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Strategic rationale An integrated payments play made less attractive by a direct distribution model.
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Growth. (FY18E-20E). Adj. EBITDA. margin(1). Geographic.
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Financial impact analysis (contd.) Illustrative takeover premia and implied acquisition multiples.
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Financial impact analysis (contd.) Can PayPal make a deal work?.
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Confidential. Supporting Materials.
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Strategic fit How does each opportunity fit within PayPal’s strategy? Customer engagement “Seeking new areas of growth” “Expanding our value proposition for customers” Customer base and scale Global capabilities “Growing our core” (predominantly US, also UK and Australia) Two-sided payments platform innovation (digital and physical) New international markets Omni- channel capabilities ? (predominantly US, gradually into Europe) ? (predominantly Nordics and UK) (50% EMEA, 10% APAC, 40% Americas) (predominantly US) ? (global, but through partner network) ($65bn TPV, of which ~50% from SMB) ? (small, $4bn+ TPV) ($10bn TPV) ($150bn TPV) ? (scalability of direct sales) (develop and design online stores) (developer solutions) (integrated payments) ? (engage at point-of-sale) (engage at point-of-sale) (integrated e-commerce / subscription SaaS ) (China and APAC) (offline) (largely offline) (online and point-of-sale) (online) (online and point-of-sale) (integrated point-of-sale) (simple point-of-sale) ? ? (state of tech vs. Braintree) ? (state of tech vs. Braintree) WIP (APAC and Brazil) 35.
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PAYPAL’S 31-DEC-2018 NET LEVERAGE ($M)(1) SENSITIVITY ANALYSIS.
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Financial Profile PayPal vs. Shopify. Source: Capital IQ.
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Financial Profile PayPal vs. Square. Source: Capital IQ.
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Financial Profile PayPal vs. Global Payments. Source: Capital IQ.
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Confidential. Appendix.
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Reader Price $45 (incl. VAT) £39 + VAT £25 + VAT £29 + VAT.
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This document contains highly confidential information and is solely for informational purposes. You should not rely upon or use it to form the definitive basis for any decision or action whatsoever, with respect to any proposed transaction or otherwise. You and your affiliates and agents must hold this document and any oral information provided in connection with this document, as well as any information derived by you from the information contained herein, in strict confidence and may not communicate, reproduce or disclose it to any other person, or refer to it publicly, in whole or in part at any time except with our prior written consent. If you are not the intended recipient of this document, please delete and destroy all copies immediately..
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PJT Partners www.pjtpartners.com. 43.