Zip and Sezzle have mutually agreed to cancel an agreed upon merger, following a horror few months that has seen the financial prospects of both companies severely damaged.

When Zip announced the acquisition on February 28, it valued Sezzle at US$491 million (A$728 million), based on adding a 22 per cent premium to its share price of $1.78. Zip’s share price was $2.25 at the time.

Yesterday, Zip traded for 50c a share, while Sezzle sold for 42c. They have fallen 86 and 87 per cent, respectively, in the past six months.

(After the termination announcement this morning, Zip shares jumped 10 per cent to 55c, while Sezzle fell 30.1 per cent to 29c.)

As part of today’s termination, Zip will pay Sezzle A$16.3 million, to cover costs and legal fees.

Zip said the deal was cancelled “in light of current macroeconomic and market conditions.”

“Terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business,” said Zip chair Diane Smith-Gander.

“While we were excited by the potential of this transaction, our board and management team are laser-focused on our strategy and execution,” said Charlie Youakim, CEO of Sezzle.

“We remain dedicated to driving toward profitability and free cash flow and believe this is the best outcome for our shareholders.”

Zip CEO Larry Diamond (pictured above) assured investors late last month that the acquisition was still on track, and that the BNPL sector has opportunities “in a heightened inflationary environment”.

“In an environment where wage growth is falling behind heightened inflationary pressures, affordability becomes an even more important priority for consumers as they budget each month,” he said.

“We believe our business model will stand up exceptionally well in such an environment as we continue to provide significant value and benefit to our customers and importantly our merchant partners seeking to drive continued growth.

“We are well-funded and positioned to execute on the significant market opportunity as we execute and take control of our future.”

One clear upside. As soon as they announced the merger was off, Afterpay parent Block dropped 2.9 per cent, to $93.63.