Square Acquires Afterpay for $29 Billion in the Name of “Buy Now, Pay Later” Booms | World Weekly
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Square Payments has reached a deal to acquire the Australian “buy now, pay later” provider in an all-share deal worth about $29 billion.
According to a joint statement issued Sunday, Afterpay shareholders will receive 0.375 shares of Square stock for every share they own, which represents a 30 percent premium based on both companies’ recent closing prices.
The transaction is expected to be completed in the first quarter of 2022. It will be the largest transaction in Australian history, overtaking Unibail-Rodamco’s $24.7 billion acquisition of Westfield Shopping Center Group in 2017.
Melbourne-based Afterpay allows retailers to provide customers with the option to pay for products in four interest-free installments if payments are made on time.
The company said its 16 million users see the service as a more responsible way to borrow than using a credit card. Merchants subsequently pay a flat fee, as well as a percentage of each order.
The deal highlighted the huge appetite for buy now, and pay later for providers, which has thrived during the coronavirus pandemic.
Adoption of buy now, pay later services tripled by early this year compared to pre-pandemic volumes, according to data from Adobe Analytics, and was particularly popular with younger consumers.
Afterpay’s competitor is Sweden’s Klarna, which doubled its valuation in three months to $45.6 billion, after receiving investment from SoftBank’s Vision Fund 2 in June. PayPal offers its own service, “Pay in 4,” while it was reported last month that Apple was looking to partner with Goldman Sachs to offer the buy now, pay later facility to Apple Pay users.
Stephen Ng, portfolio manager at Afterpay investor Ophir Asset Management, said the deal validated the purchase and now pays later for the business model and could be a catalyst for consolidation activity in the sector.
“Because of the association with Square, it can start a round of integration with other payment providers where buy now, pay later becomes another payment method offered to their customers,” he said.
Afterpay said its services are used by more than 100,000 merchants across Australia, the United States, Canada and New Zealand as well as in the United Kingdom, France, Italy and Spain, where it is known as Clearpay.
Square intends to make it easier for its merchants and users to apply Cash, a fast money transfer service popular with small businesses and a competitor to PayPal’s Venmo.
“It’s an expensive buy, but the buy now, pay later market is growing so fast and it makes perfect sense for Square to have a strong stake in it,” said retail analyst Neil Saunders.
“For some, especially the younger generations, buy now, pay later is the preferred form of credit. Afterpay has already had some success with its US expansion, but Square will be able to accelerate this by integrating it into its payment platforms and infrastructure – perhaps that is one rationale for Relatively high bargain price.”
Square handled $42.8 billion in payments in the second quarter, with cash app transactions making up about 10 percent, according to numbers released Sunday. The company earned $204 million on revenue of $4.7 billion.
“Square and Afterpay have a common purpose,” said Square CEO Jack Dorsey, who is also the CEO of Twitter. “We built our business to make the financial system more fair, accessible and inclusive, and Afterpay has built a trusted brand that aligns with these principles.”
Once the acquisition is complete, the companies said, Afterpay shareholders will own about 18.5 percent of Square. The deal has been approved by both companies’ boards of directors but will also need support from Afterpay shareholders.
As part of the deal, Square will create a secondary listing on the Australian Securities Exchange to provide Afterpay shareholders with the option to receive Square shares listed on the New York Stock Exchange or ASX. Square may choose to pay 1 percent of the purchase price in cash.
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