Square, the payment firm of Twitter co-founder Jack Dorsey, will buy pioneer Buy Now, Pay Later (BNPL) Afterpay for $ 29 billion, creating a global transactions giant in biggest buyout from an Australian company.
Takeover highlights popularity of a business model that disrupted consumer credit by charging merchants a fee for offering small point-of-sale loans that their buyers pay off in interest-free installments, bypassing credit checks .
It also locks in a remarkable run in the share price for Afterpay, whose stock was trading below AU $ 10 ($ 7.3) in early 2020 and has since skyrocketed as the COVID pandemic -19 – and stimulus payments to a stuck-at-home workforce – saw a rapid shift to online shopping.
The share buyback would value the shares at AU $ 126.21 ($ 92.65), the companies said in a joint statement on Monday.
That means a salary of A $ 2.46 billion ($ 1.8 billion) each for Afterpay founders Anthony Eisen and Nick Molnar. Chinese firm Tencent Holdings, which paid A $ 300 million ($ 220.2 million) for 5% of Afterpay in 2020, is reportedly pocketing A $ 1.7 billion ($ 1.2 billion).
“The acquisition of Afterpay is a ‘proof of concept’ moment to buy now, pay later, both validating the industry and creating a formidable new competitor for Affirm Holdings Inc, PayPal Holdings Inc and Klarna Inc,” said analysts at Truist Securities said.
“We expect Square to invest heavily to integrate Afterpay and accelerate organic revenue growth.”
Afterpay shares edged above Square’s indicative buy price early in the session before settling just below A $ 116.51 ($ 85.5) by mid-afternoon, up 20 , 55% and helping to increase the market at large by 1.4%.
“We have built our business to make the financial system more fair, accessible and inclusive, and Afterpay has built a brand of trust aligned with these principles,” Dorsey said in the statement.
“Together, we can better connect our… ecosystems to deliver even more compelling products and services to merchants and consumers, empowering them. “
The founders of Afterpay said the deal marked “an important recognition of Australia’s tech sector, as local innovation continues to be shared more widely around the world.”
The deal, which eclipses the previous record for a finalized Australian takeover – the $ 16 billion sale of the global Westfield shopping center empire to Unibail-Rodamco in 2018 – also pushed shares of rival BNPL Zip up. , 7.53%.
More significant competitors have recently entered the market, adding to the challenges of Afterpay and its peers. For example, Apple is teaming up with Goldman Sachs for a buy now, pay later service that would be linked to Apple Pay, Bloomberg News reported in July. Afterpay shares fell 10% the day after the report.
Afterpay also competes with Klarna, an unlisted Swedish company, as well as new offerings from US online payments provider PayPal.
“Few other contenders are as well suited as Square,” analysts at Wilsons Advisory and Stockbroking said in a research note.
“With… PayPal is already enjoying early success in its native BNPL, with the exception of the big American tech titans [Amazon, Apple] pushing for an 11th hour bid, we expect a competing proposal from a new party to be low risk. “
Credit Suisse analysts said the merger appeared to be an “obvious fit” with “strategic merit” based on cross-sell payment products, and agreed that a competing offer was unlikely.
The Australian Competition and Consumer Commission, which is expected to approve the deal, said it had just been made aware of the plan and “will look into it carefully once we see the details.”
Established in 2014, Afterpay was the forerunner in the niche industry of no-credit online payments that emerged last year as more and more people, especially young people, chose to pay multiple times. payments for everyday items during the pandemic.
BNPL companies lend buyers instant funds, typically up to a few thousand dollars, which can be repaid without interest.
Since they typically make money from merchant commissions and late fees – not interest payments – they bypass the legal definition of credit and therefore credit laws.
This means that BNPL providers are not required to perform background checks on new accounts, unlike credit card companies, and normally only ask for the applicant’s name, address and date of birth. Critics say this makes the system an easier target for fraud.
Loose regulation, growing popularity, and rapid user adoption have led to rapid industry growth and are believed to have prompted Apple to launch a service.
For Afterpay, the deal with Square provides a large customer base in its primary target market, the United States, where its sales for fiscal 2021 nearly tripled to A $ 11.1 billion (AU $ 8.1 billion). dollars) in constant currencies.
The deal “appears close to a deal done, in the absence of a superior proposal,” Ord Minnett analyst Phillip Chippindale said, adding that it “brings important benefits of scale, including to Square’s Seller and Cash application products “.
Talks between the two companies began over a year ago and Square was confident there was no competing offer, said a person with direct knowledge of the deal.
Afterpay shareholders will get 0.375 Class A Square shares for each Afterpay share they own, implying a price of approximately AU $ 126.21 ($ 92.64) per share based on Square closing. Friday, the companies said. The deal includes a severance clause worth A $ 385 million ($ 282.62 million) triggered by certain circumstances, such as if Square’s investors do not approve of the takeover.
Square has announced that it will conduct a secondary listing on the Australian Securities Exchange to allow Afterpay shareholders to trade shares through CHESS’s custodian interests.
Morgan Stanley advised Square on the deal, while Goldman Sachs and Highbury Partnership consulted Afterpay and its board.