US-based investment firm Kohlberg Kravis Roberts (KKR) has agreed to purchase PayPal’s up to €40bn of buy now, pay later (BNPL) loans in France, Germany, Italy, Spain, and the UK.
Under the terms of the agreement, KKR’s private credit funds and accounts will acquire PayPal’s entire European BNPL loan portfolio, along with eligible BNPL loans in future.
PayPal will be responsible for all the customer-related services, including underwriting and servicing, related to its European BNPL products.
The transaction is expected to be completed in the second half of this year, subject to certain customary closing conditions.
Upon closing, the transaction PayPal will initially generate around $1.8bn in proceeds, which will be used for enhancing capital return to shareholders and general corporate purposes.
The payments company will allocate around $1bn to incremental share repurchases, in line with the updated outlook of around $5bn in total share repurchases this year.
KKR intends to fund the transaction through its private credit funds and accounts.
KKR private credit global head Dan Pietrzak said: “Having the ability to work exclusively with a scaled and high-quality strategic partner like PayPal is a testament to the strength and maturity of our Asset-Based Finance business.”
KKR managing director Vaibhav Piplapure said: “We are thrilled to deepen our footprint in consumer finance through this transaction and to work with one of the leading players in this space.
“We believe that PayPal Pay Later offers a differentiated experience that positions PayPal to capture additional share in this growing market.”
While the concept of split instalment payments for consumer purchases has been around for decades and online consumer financing has been a strategic offering of PayPal since 2008, BNPL has dramatically increased in popularity over the past several years.
Since launching its first BNPL offering in 2020, PayPal has become an industry leader with its PayPal Pay Later products, issuing more than 200 million loans to over 30 million customers in eight markets around the world.
In 2022, PayPal processed more than $20 billion of BNPL payment volume globally, up approximately 160% from 2021.
KKR Capital Markets has structured and arranged the debt for the transaction, and Morgan Stanley & Co. served as the financial and structuring advisor to PayPal on the transaction.
Also, Freshfields Bruckhaus Deringer, Pérez-Llorca, and Allen & Overy Luxembourg served as legal advisors to PayPal, and Latham & Watkins served as legal counsel to KKR.
PayPal acting chief financial officer senior vice president Gabrielle Rabinovitch said: “Buy now, pay later has become a major asset to PayPal’s checkout experience, driving engagement, payment volume growth, and repeat use while delivering high-value customers to our merchants.
“Our collaboration with KKR will allow us to accelerate our PayPal Pay Later originations alongside market demand in Europe while preserving free cash flow for other strategic initiatives.”
