DLocal Explores Possible Sale
Taking a Look at Recent DLocal (DLO) News.
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Acquired at a Significant Premium?
From what I’ve been hearing, Uruguay-based payments provider DLocal (DLO)—currently valued at around the $3B range —is exploring potential sale options. They’ve brought in Morgan Stanley to gauge interest from both private equity firms and bigger financial technology players. While it’s still early days and there’s no guarantee of a deal, the news initially sent DLO’s shares up nearly 14%, though they’ve since given back some of those gains.
This isn’t the first time they have considered selling; they reportedly explored a similar path last year, but disagreements over financial terms caused talks to fall apart. At the moment, both DLO and Morgan Stanley are declining to comment (who really knows!).
DLO’s largest shareholder is private equity firm General Atlantic, and the company operates across Latin America, parts of Africa, and Asia. Its impressive client roster features well-known names like Amazon, Microsoft, and Google. Even so, 2023 has brought challenges. DLO’s shares, listed on the NYSE since their 2021 IPO, had dropped about 33% for the year before their recent bounce. Analysts point to weaker emerging-market currencies, reduced cross-border payment volumes, and increased competition in the fintech space as key reasons for the decline.
Despite those headwinds, DLO did post a 5% rise in gross profit in its most recent quarter, thanks to improved payment volumes in certain regions (could signal an inflection point for the business). This potential sale does highlight a broader trend of consolidation in the payments industry though, where post-pandemic realities have led to falling valuations and made companies like DLO appealing takeover targets. We’ve already seen major moves this year, such as Advent International’s $6.3B acquisition of Canada-based Nuvei. As digital payment demands continue to evolve, it’s no surprise that DLO—and others—are considering opportunities to strengthen their positions or partner with larger players.
My Take
I’m on the fence about this news. On one hand, if DLO continues to execute successfully and expands into its markets, we might see multi-bagger returns from these levels. However, those potential gains—admittedly speculative, since the company still has a lot to prove—would go out the window if an acquisition happens. That part really bothers me, because it’s often how things play out for smaller companies like DLO.
At the same time, any potential buyer would almost certainly have to pay a premium. Depending on your cost basis—mine is just below $11—you’d likely see a profit. From my perspective, given DLO’s growth potential, they wouldn’t settle for a small premium. I’d guess they’d aim for something around or just under $6B, which translates to about $19–$22 per share. Whatever they consider the best interest of shareholders.
So yes, an acquisition would mean sacrificing the possibility of those long-term, multi-bagger gains, but in exchange, we’d probably get a sizable premium. Meanwhile, my overall thesis on the company hasn’t changed because there’s no guarantee a deal actually goes through. If you own shares and your cost basis is decent (I guess it’s too late for tax loss harvesting at this point if you are down), I think holding and waiting to see what happens might be the best move. Like I said, the thesis here is still intact in the interim. Personally, I’m keeping my shares, but I won’t be adding more because it’s already one of my top five positions.