Although 2018 was "a light year" for PayPal Holdings Inc. on the M&A front, the industry should expect the company to be acquisitive going forward, according to its chief executive.
On a call to discuss third-quarter earnings, President and CEO Daniel Schulman said his company looks at 200 to 300 companies as potential takeover targets every quarter. In the medium term, the management team continues to expect PayPal to spend between $1 billion and $3 billion on acquisitions each year. The payments company is looking to acquire companies that would improve its consumer engagement, expand its geographic footprint, and grow its scale and scope worldwide, Schulman added.
PayPal will generate about $3.5 billion of free cash flow in 2019, Schulman said. It has had a number of high-profile deals recently, including a $2.2 billion deal for Sweden-based iZettle AB and a $750 million minority investment in Argentina-based e-commerce powerhouse MercadoLibre Inc. In September, the People's Bank of China approved PayPal's application to acquire a 70% stake in Chinese payment company Guofubao Information Technology Co. Ltd., better known as GoPay.
That move makes PayPal the first non-Chinese payments company to be licensed to provide online payment services in the country, which historically has prevented any significant foreign investment in its financial sector. The company initially intends to focus on facilitating cross-border payments with China's merchants and consumers, linking China's commerce ecosystem to PayPal's existing two-sided network, Schulman said.
"It's incredibly meaningful to be the first non-Chinese company to obtain a payments license to process domestic online payments in China," Schulman said. "It's a tangible example of China opening its financial market. We have been working this diligently for years. When I say diligent, I mean literally almost every single day, we've had calls and have been working on this."
The chief executive said entities in China appreciated PayPal's ability to work closely with regulators and focus on compliance and risk management. He said PayPal partners with the financial ecosystem as opposed to going in and disrupting it.
"We're innovative, but we're partners with the existing structure," Schulman said.
The license will allow PayPal to both create new partnerships and expand existing ones in the region, like those with China Unionpay Co. Ltd. and Alibaba Group Holding Ltd.'s online platform AliExpress Ltd. The deal substantially increases PayPal's total addressable market, as China is the world's largest e-commerce market.
PayPal will provide more details after the close of the transaction, which is expected in the fourth quarter.