Paypal is gaining ground after announcing its $2.2 billion acquisition of a European competitor of Square

Spencer Platt / Getty Images

• Paypal announced it is acquiring iZettle, a European competitor of Square, for $2.2 billion.
• The $2.2 billion deal is Paypal's largest acquisition to date and would put the company in the field of physical payments.
• Watch Paypal trade in real-time here.

Paypal is up almost 2% in pre-market trading after announcing it will pay $2.2 billion to acquire iZettle. The Stockholm-based payments company offers mini credit card readers that allow smartphones and tablets to take payments, making it a competitor to Square. The deal, if closed, would be Paypal's largest acquisition, putting it in the point-of-sale business.

"The deal allows PYPL to offer an increasingly-critical omni-channel solution to merchants in those markets," Jefferies analyst Ramsey El-Assal wrote in a note to clients. "We are not surprised to see PYPL put its impressive balance sheet to work for strategic M&A."

iZettle would further Paypal's effort to offer its merchants an omni-channel solution where payments can be made online as well as in-store, he wrote.

In addition, the deal opens up doors for both companies to have more of an international presence according to El-Assal. The European startup is used in 11 countries including some in Latin America while Paypal operates in 200 countries. At least in the near-term, he sees iZettle as more of an "international play" because Square and FDC's Clover already have a head start in the North American small to midsize business market.

The $2.2 billion acquisition should not weigh too heavily on Paypal's 2018 profitability, given the size of the acquisition relative to the company's large scale, he wrote.

Paypal is up 7.6% this year.

Markets Insider