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PayPal Inc. plans to buy online wire-transfer provider Xoom Corp. in an all-cash deal valued at $890 million, the companies announced late Wednesday. The planned acquisition comes less than three weeks before PayPal’s expected spin-off from eBay Inc. and will bring under PayPal’s wing a highly regarded rival in the growing market for PC- and mobile-based cross-border money transfers.
San Jose, Calif.-based PayPal plans to buy Xoom for $25 per share, which represents a 32% premium over Xoom’s three-month volume-weighted average share price, according to PayPal. PayPal said it will fund the acquisition with cash on its balance sheet. The deal has approvals from PayPal’s and Xoom’s boards of directors as well as eBay’s board.
“Expanding into international money transfer and remittances aligns with our strategic vision to democratize the movement and management of money,” PayPal president Dan Schulman said in a news release. “Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace.
“Xoom’s presence in 37 countries—in particular, Mexico, India, the Philippines, China and Brazil—will help us accelerate our expansion in these important markets,” continued Schulman, who will become PayPal’s chief executive when the company is spun off from San Jose-based eBay on July 17.
“Becoming part of PayPal represents an exciting new chapter for Xoom, which will help accelerate our time-to-market in unserved geographies and expand the ways we can innovate for customers,” John Kunze, Xoom’s president and CEO, said in the release. “Being part of a larger, global organization will help us deliver the best possible experience to our customers, while maximizing value for our shareholders.”
PayPal already offers cross-border person-to-person payments under its own brand, and it also is taking the Venmo P2P service, a unit of its Braintree subsidiary, abroad. But Xoom is a highly recognized and fast-growing player in international wire transfers. Its biggest markets are India, the Philippines, and Mexico, which account for nearly 75% of company revenue.
Xoom recorded a 23% year-over-year increase in transaction volume in the first quarter to 3.55 million, and gross sending volume of $1.67 billion, up 6%. The company’s active customer base increased 19% to 1.34 million.
Xoom will operate as a separate service within PayPal after the deal’s expected closing in the fourth quarter. PayPal plans to cross-sell Xoom’s services to its 68 million active U.S. customers.
PayPal said Xoom’s proprietary and fast “funds-out” network enables it to enter a “growing marketplace with a leading technology solution with strong presence in key international markets.” More than 90% of Xoom’s gross sending volume is funded through low-cost automated clearing house network transfers, according to Xoom’s 2014 annual report.
The announcement comes at a time when, despite its strong growth, Xoom faces increasing competition in the online wire-transfer space from not only PayPal and Venmo, but also from leading wire-transfer providers The Western Union Co. and MoneyGram International Inc., and from smaller industry players.
