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A troubled buy now, pay later (BNPL) firm has proposed to shareholders that it delists from the Australian Stock Exchange (ASX) and relocates to the Cayman Islands under private ownership, in a bid to secure much-needed capital.

Splitit, a card-based BNPL firm, the plans on Wednesday (August 16), while trading in its shares was suspended due to the announcement.

Two days earlier, as covered by VIXIO, shareholders were warned that news of a “significant transaction” was forthcoming, but no further details were given other than the company’s intention to delist.

As per the announcement, Splitit disclosed that it has signed an agreement with US private equity firm Motive Partners for an investment of up to $50m (A$76m) in the company.

The proposed $50m investment will comprise two $25m tranches that will be exchanged for new preference shares, i.e., shares issued directly to Motive Partners, rather than to the public.

The first $25m tranche will be invested immediately upon shareholder approval of: 1) a voluntary delisting from the ASX; and 2) redomiciling to the Cayman Islands by means of a share-exchange accomplished through a merger.

The second $25m tranche will be invested upon Splitit achieving certain FY 2023 financial milestones and other conditions.

The board at Splitit said it supports the proposal, noting that it will allow the company to tap into “significant growth capital” while facing a “difficult fundraising environment”.

On the redomiciling plans, the board argued that the company will enjoy “greater flexibility” if the proposal is accepted.

“As a private Cayman Islands company, Splitit is expected to benefit from significantly lower administrative costs, a more flexible operating environment, a superior ability to attract and retain talent, and improved prospects of accessing future growth capital at an attractive valuation,” it said.

However, even though the board touted the “optionality” of the proposal for existing shareholders, it also said that if the proposal is accepted, shareholders who do not sell now may struggle to sell later.

As a private company, Splitit “expects” to have a partnership with PrimaryMarkets, a private share trading platform, to facilitate trading in Splitit shares, the board said.

“Nonetheless, there is no assurance or guarantee that there will be sufficient liquidity in the private share trading platform to facilitate shareholders being able to sell their shares,” it added.

Splitit stock was trading at A$0.075 at the time of the announcement, but it fell 12 percent to A$0.066 as soon as trading opened on Thursday (August 17).

Nonetheless, under the terms of the proposal, Motive Partners would pay A$0.20 per share for the new shares it invests in.

Brad Kelly, managing director of Australia’s Payment Services consultancy, said in his view the proposal is a “disaster” for shareholders.

“They can either say ‘no’ and the company tanks, or they can say ‘yes’ and end up with God knows what based in the Cayman islands,” he told VIXIO.

Even if the proposal is accepted, Kelly said it is extremely unlikely that existing shareholders will be able to cash out for anything close to A$0.20 per share in future.

At , a forum for Australian stock investors, some posters had misinterpreted the proposal to mean that they could get $0.20 per share if the company goes private.

“Retail investors are being taken for a ride yet again,” said Kelly.

Splitit in terminal decline

Both Kelly and Grant Halverson, CEO of Australian payments consultancy McLean Roche, said that even if Splitit goes private with new investment, it will not be enough to turn the company’s fortunes around.

In Q2 2023, Splitit $3.1m in revenue against $4.4m in expenses, producing a loss of $1.3m for the quarter.

This was a slight improvement against the on both counts, when Splitit posted $2.8m in revenue against $5m in expenses, producing a loss of $2.2m.

At the same time, however, Splitit’s net cash has been chipped away with each passing quarter, and currently stands at $19m.

Halverson added that with interest rates continuing to rise in Australia, this is likely to be a “death sentence" for the interest-free pay-in-four model offered by pure-play BNPLs such as Splitit.

Enter bigtech

As VIXIO has written previously, the BNPL market is undergoing a period of consolidation worldwide.

Australia, once a mecca for BNPLs globally, has gone from having 12 BNPLs trading on the ASX to only three, and that could be reduced to two if Splitit goes private.

At the same time, Apple Pay Later and PayPal Pay Later are absorbing market share from smaller rivals that have either gone bust or have retreated to core jurisdictions.

Last month, a new by market research firm J.D. Power found that PayPal was comfortably the most-used BNPL platform in the US during Q2 this year.

Out of 8,000 BNPL users surveyed, 39 percent had used PayPal Pay Later during that period, followed by 33 percent for Afterpay and 19 percent for Apple Pay Later.

Apple’s number three position is particularly notable, given that it only launched its BNPL service in March this year.

J.D. Power noted that almost immediately after launch, Apple Pay Later had been used by more customers than smaller BNPL brands such as Zip and Sezzle.

It also noted that Apple Pay Later users tend to be more “financially healthy” than “most” users of other BNPL brands.

Going forward, Kelly said that Apple and PayPal will continue to "own the space".

"Apple will only want (and will get) the best customers, leaving the riff-raff to Zip and Afterpay who can’t manage bad debts, making their situation even worse,” he said.

Halverson agreed: “PayPal is already number one,” he said, “and banks, like bigtech, can also move in on this niche.”