The digital payments company known for its popular Cash App – Square is acquiring Afterpay, an Australian ‘buy now, pay later’ (BNPL) operator in a “game-changing” A$39 billion (US$29 billion) deal – the largest corporate acquisition deal in Australia’s history and largest cross border fintech deal globally.
“Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles,” said Jack Dorsey, Co-Founder and CEO of Square.
“Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”
According to Bernstein analyst Harishta Rawat, connecting the merchant business to Square’s existing Cash App business is “the holy grail” for the business, as it provides the potential to put the company on track for faster long-term growth. The customer bases of the two companies are also “deeply synergistic,” as Square’s main revenue stream comes from underbanked users in the US; whilst Afterpay’s from Australia and Europe.
Not just about Buy Now, Pay Later (BNPL)
Although Afterpay appears to provide a bridge to integrate BNPL service into Square’s services, Square didn’t need to spend $29 billion just to deploy buy now, pay later services.
(Square isn’t really “spending” anything, actually, since this is an all-stock deal. Square’s stock price is trading around $274, up about four-fold from its price at the beginning of 2020.)
What the deal is really about is bringing AfterPay’s merchant relationships into Square’s seller ecosystem and converting AfterPay’s existing customer base into Cash App users. Through the deal, Afterpay’s business model as a merchant acquisition driver will assist Square to grow its reach with larger merchants and internationally by driving crucial links between its consumer and seller business in a more substantial way.
RBC Capital Markets analyst Daniel Perlin commented that Afterpay’s global base of over 100,000 merchants “should accelerate Square’s growth with larger sellers and expend into new geographies, while further enhancing merchant acquisition.” Afterpay gets most of its volume from enterprise merchants.
Acquisition to be finalised in early 2022
It was announced that both Afterpay and Square have entered a Scheme Implementation Deed in which Square has agreed to acquire all issued shares in Afterpay by a court-approved Scheme of Arrangement. The transaction is scheduled to be finalised in the first quarter of calendar year 2022 and would be paid in stock with the transaction value based on the closing price of Square common stock on 30 July 2021. Based on Square’s closing price on 30 July 2021 (US$247.26), it represents an implied transaction price of $126.21 per Afterpay share and a premium of 30.6% previous closing price of $96.66 on 30 June 2021.
The Square-Afterpay Deal for Afterpay’s shareholders
Proceeding with the completion of the Afterpay acquisition deal, Square Inc. will be listed as one of the top 20 companies on the ASX. Square is expected to have an equivalent or less weighting of Afterpay once the deal is completed.
Source: Financial Review
Under the standing offer, the shareholders of Afterpay are given the opportunity to either elect in receiving shares in Square that will be listed on the ASX, or the US traded stock. For fund managers who solely invest in Australian shares by mandate however, the choice is either to opt for the ASX shares (upon completion of M&A deal – Square listed on the ASX), or sell their holdings of Afterpay now for cash at a slight discount to the implied value of a fully realised deal.
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