Square Inc., the payments company co-created by Twitter‘s co-founder Jack Dorsey, is set to acquire the pioneering Australian buy now pay later (BNPL) firm Afterpay Ltd. in a massive $29 billion deal.
Under the terms of the agreement, shares of Afterpay are appraised at $126.21 apiece, illustrating a premium of 30% above the firm’s last closing price, as detailed by the joint statement from the companies.
Pending regulatory approval and closure of the deal, Afterpay will become integrated with Square’s Cash App and its Seller ecosystem, which caters to small businesses, according to Square’s Chief Financial Officer Amrita Ahuja. In a statement, Ahuja emphasized, “Unlike traditional consumer financing, which has been central to our customers from the start, our solution ensures quick access to funds for both merchants and consumers.” Ahuja chose not to comment on whether Square would be introducing a credit card offering.
21st Century Approach to Consumer Credit
Ahuja championed BNPL schemes as modern alternatives to conventional credit systems that resonate with younger demographics. Afterpay allows shoppers to indulge immediately and spread their payments over time without incurring fees or interest, so long as payments are punctual, explained the Afterpay website.
Square’s acquisition could see Afterpay’s chief executives, Anthony Eisen and Nick Molnar, join the Square team upon successful completion of the transaction.
With Afterpay’s considerable user base of 16 million, Square aims to significantly expand its own 70 million annual active users detailed by Ahuja.
Market analysts at Bloomberg Intelligence cautioned that Afterpay’s stakeholders might spurn Square’s offer, noting that it fell short of the target company’s highest market valuation and didn’t fully reflect Afterpay’s robust performance in comparison to Square.
In recent business developments, Square initiated banking services, providing checking and savings accounts for small enterprises, along with financing options. Afterpay’s acquisition would enable further expansion into personal lending.
Dorsey expressed Square’s alignment with Afterpay’s guiding ethos. “Our organizations are both committed to an equitable, accessible, and inclusive financial system, and Afterpay’s brand has been built on those very values,” he stated.
Square announced a significant increase in its second-quarter gross profits, rising 91% year-over-year to $1.14 billion. Their gross payment volume—a metric for the total processed payments on Square’s system—surged 88% to $42.8 billion.
Should regulatory approvals be granted, this transaction is on course to become Australia’s largest acquisition of its kind. The Australian Competition and Consumer Commission acknowledged its awareness of the proposed deal and pledged a thorough review upon receipt of detailed plans.
Globally, Afterpay employs in excess of 1,300 staff members. The company’s directors have unanimously advised shareholders to endorse the transaction, which is anticipated to finalize in early 2022 once it surpasses all hurdles.
The swift and widespread acceptance of no-credit-check loan services has caused a significant upswing in their usage. As a result, many online payment solutions and financial technology entities are scrambling to offer their iterations of the BNPL model for relatively inexpensive items.
Key market competitors such as Affirm, PayPal, Klarna, Mastercard, Fiserv, American Express, Citi, and JP Morgan Chase are in the fray, each unveiling similar loan services. Apple Inc. has also forayed into the BNPL sector, collaborating with Goldman Sachs Group to offer a split-payment option with Apple Pay.
