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Square to buy Afterpay for $39 billion

·3-min read
Twitter founder Jack Dorsey speaking into microphone, phone with Afterpay logo.
Twitter billionaire Jack Dorsey's Square will acquire Australian buy now, pay later giant Afterpay. (Images: Getty).

Payments platform Square has agreed to purchase buy now, pay later giant Afterpay in a $39 billion deal, with Square founder Jack Dorsey citing the companies’ shared values.

Square (NYSE: SQ) will acquire all the Afterpay (ASX: APT) shares in the deal, with Afterpay shareholders to receive 0.375 shares of Square class A stock for every share they own.

That’s an implied price of around $126.21 per share, based on the price of Square at the close on Friday, and more than 30 per cent higher than Afterpay’s closing price of $96.66.

“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,” Dorsey said.

The deal is set to establish an online payments juggernaut and boost Afterpay’s growth in the US. Afterpay has nearly 100,000 merchants around the world with more than 16 million customers.

“Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers,” Dorsey said.

Afterpay founders Nick Molnar and Anthony Eisen will stay on at Afterpay. The two founders and co-CEOs said the deal will provide a broader platform for new capabilities and services.

“We are fully aligned with Square’s purpose and, together, we hope to continue redefining financial wellness and responsible spending for our customers,” they said.

“The transaction marks an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world.”

The two founded Afterpay in 2014, with the company soon taking off among young Australian shoppers.

Molnar became Australia's youngest self-made billionaire in July 2020 at the age of 30 as shares in the company grew a staggering 740 per cent

"This acquisition offer highlights the buy now pay later industry’s massive growth potential. Payment in delayed instalments has become a clear hit with the average consumer," said IBISWorld senior industry analyst Yin Yeoh.

The BNPL sector is slated to continue growing at an annualised 13.6 per cent rate for the next five years with Afterpay leading the charge. 

However, Yeoh said it will face stiff competition. 

"Existing industry players are expected to face increasing competition from major financial institutions. Traditional credit card providers will likely enter the industry to recapture market share that has been lost to BNPL firms," Yeoh said.

Regulatory intervention also presents a looming threat to BNPL providers, including recent scrutiny from the Reserve Bank of Australia.

Additionally, Afterpay will face headwinds in the form of heightened regulation. It's been in the spotlight in recent years due to claims that Afterpay is a form of credit and should be regulated as such. 

In 2019, BNPL firms were subjected to a Senate Inquiry into how the platforms were changing consumer habits. The Australian Securities and Investments Commission report found 81 per cent had used Afterpay to buy items they couldn't afford in one purchase, while 70 per cent said it had made them more spontaneous. 

And 64 per cent said they thought Afterpay allowed them to spend more than they normally would. 

"Any change to current regulatory protection could drastically alter the existing business model of BNPL operators. BNPL providers have previously argued against industry regulation, but strong revenue growth this year may make regulation change more likely," Yeoh said.

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Image: Yahoo Finance
Image: Yahoo Finance
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