Payments firm Square, co-founded by Jack Dorsey, has unveiled its plans to acquire buy now, pay later (BNPL) pioneer Afterpay in a share-swap deal worth a staggering $29 billion. This acquisition marks the largest-ever buyout in Australia and creates a global transactions powerhouse.
The buy now, pay later model has revolutionized consumer credit by enabling shoppers to repay small loans in interest-free installments, thereby bypassing the need for credit checks. Especially during the Covid-19 pandemic, Afterpay’s stock witnessed a significant surge in value as more consumers turned to online shopping.
Under the all-stock buyout arrangement, Afterpay’s shares are valued at an impressive A$126.21 ($92.65), allowing the founders to amass a staggering A$2.46 billion each. Tencent Holdings, owning a 5% stake in Afterpay, stands to profit A$1.7 billion from the deal. This move positions Square as a formidable competitor against industry players like Affirm Holdings, PayPal Holdings, and Klarna, effectively validating the buy now, pay later industry as a whole.
As Square integrates Afterpay into its operations, the expectation is for significant investment in driving organic revenue growth. The announcement of the acquisition led to Afterpay’s shares exceeding Square’s purchase price and settling slightly below it, contributing to a broader market increase of 1.4%.
This strategic move will enable Square and Afterpay to align their ecosystems, offering innovative products and services to both merchants and consumers. The founders of Afterpay perceive this agreement as acknowledgment of the groundbreaking innovation within Australia’s technology sector that is now being shared globally.
The previous record for an Australian buyout was set in 2018 with the $16 billion sale of Westfield’s global shopping mall empire. This acquisition has also benefited rival BNPL player, Zip Co, by boosting its shares.
Since its establishment in 2014, Afterpay has experienced rapid growth, particularly among young consumers who prefer to pay for everyday items through installments. Unlike traditional credit card companies, buy now, pay later firms like Afterpay generate revenue from merchant commissions and late fees rather than interest payments. This flexible regulation, coupled with growing popularity, has propelled the sector’s rapid expansion and even spurred Apple to launch its own service.
For Square, the acquisition of Afterpay represents a considerable customer base within its primary target market, the United States, where sales soared threefold to A$11.1 billion in fiscal year 2021.
Negotiations between Square and Afterpay have persisted for over a year, with Square confident that no competing offers for the acquisition were on the table.
Useful links:
1. Forbes: Square Acquires Afterpay, Endorses Payments-as-a-Service
2. Reuters: Square to pay $29 billion in stock for Afterpay in buy now, pay later push
