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Why private equity firms are eyeing up PayPal

By   /   February 12, 2014  /   No Comments

A worldwide brand like PayPal Inc is always likely to attract investors but those in the private equity game are seeing very serious competition, from other investment vehicles, for the company’s attention.

It is thought this attention could well push the asset over $35 billion and therefore out of the range of most private equity investors.

While Carl Icahn has been lavishing attention on eBay Inc. with the company underperforming in stock markets, private equity could well be the perfect vehicle for PayPal.

Ten years ago, eBay bought PayPal for $1.2 billion yet now eBay is dependent on its own subsidiary, whereas, PayPal’s technological advantages mean it is capable of standing as a company in its own right.

While this represents the perfect opportunity for Private Equity investment, it also represents a good deal for many other investors and so, if PayPal were to become independent of eBay, technology giants like Google, Apple, and Facebook along with other traditional payment companies such as VISA and American Express would all no doubt all compete for the same contract.

What makes this situation unique is the attention it would generate for different companies operating in different sectors, yet, for private equity firms PayPal presents the best opportunity to produce a successful version of a leveraged buy-out in the region of $40b.

What is for sure is that it is still too early to invest in PayPal as it needs to resolve its differences with eBay to be considered a secure investment and what the world is waiting for is the decision by the parent company as to whether it should divest the company or spin it out.

Firms involved in PE takeovers normally only commit less than ten per cent of the total fund to a single company and so there are less than ten firms with this large enough, and with a healthy balance sheet to support the transaction.



Research suggests that $216 billion was raised by LBO shops last year, the largest number since 2008 meaning $10billion buyouts are very much on the agenda.

It is thought that a combination of four private equity firms could put up the $6 billion that, in the current debt market, might go far enough to leverage a deal for PayPal, providing eBay retain a stake in its spinout, as it did when selling Skype.

The success of that deal (eBay profited from the initial exit plus returns from a 30% stake which grew significantly by the time Microsoft launched an $8.5 billion takeover deal) will surely encourage eBay to take similar actions should it spinout PayPal for investment.

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