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Payments company Square has reached a deal to acquire Australian “buy now, pay later” provider Afterpay in an all-stock deal worth about $29bn.
According to a joint statement released on Sunday, Afterpay shareholders will receive 0.375 shares of Square stock for every share they own, representing a 30 per cent premium based on the most recent closing prices for both companies.
The transaction is expected to be completed in the first quarter of 2022. The deal would be the largest in Australian history, trumping Unibail-Rodamco’s $20bn takeover of shopping centre group Westfield in 2017.
Melbourne-based Afterpay allows retailers to offer customers the option to pay for products over four instalments, without interest if the payments are made on time.
The company said its 16m users regard the option as a more responsible way to borrow than using a credit card. Merchants pay Afterpay a fixed fee for offering the service, plus a percentage of each order.
The deal underscores the huge appetite for buy now, pay later providers, which have boomed during the pandemic.
By early 2021, according to data from Adobe Analytics, use of buy now, pay later had tripled compared to pre-pandemic volume, and was particularly popular with younger consumers.
Rivalling Afterpay in the sector is Sweden’s Klarna, which doubled its valuation in three months to $45.6bn, after receiving investment from SoftBank’s Vision Fund 2 in June. PayPal offers its own service “Pay in 4”, while last month it was reported that Apple was looking to partner with Goldman Sachs to offer buy now, pay later facilities to users of Apple Pay.
Afterpay said its services are being used by more than 100,000 merchants across Australia, the US, Canada, New Zealand, and in the UK, France, Italy and Spain, where it is known as Clearpay.
Square intends to offer the facility to its merchants and users of its Cash App, a fast money transfer service popular with small businesses and a competitor to PayPal’s Venmo.
“It’s an expensive purchase, but the ‘buy now, pay later’ market is growing very rapidly and it makes a lot of sense for Square to have a solid stake in it,” said retail analyst Neil Saunders.
“For some, especially younger generations, ‘buy now, pay later’ is a favoured form of credit. Afterpay has already had some success with its US expansion, but Square will be able to accelerate that by integrating it into its platforms and payment infrastructure — that’s probably one of the justifications for the relatively toppy price tag of the deal.”
Square handled $42.8bn in payments in the second quarter, with Cash App transactions making up about 10 per cent, according to figures released on Sunday. The company posted a $204m profit on revenues of $4.7bn.
“Square and Afterpay have a shared purpose,” said Square chief executive Jack Dorsey. “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.”
“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.”
Once the acquisition is completed, Afterpay shareholders will own about 18.5 per cent of Square, the companies said. The deal has been approved by both companies’ board of directors, but will need to be backed by Afterpay shareholders.
As part of the deal, Square will establish a secondary listing on the Australian Securities Exchange to provide Afterpay shareholders with an option to receive Square shares listed on the New York Stock Exchange or the ASX. Square may elect to pay 1 per cent of the purchase price in cash.
“By combining with Square, we will further accelerate our growth in the US and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to our merchants and consumers,” said Anthony Eisen and Nick Molnar, Afterpay’s co-founders and co-chief executives.
“We are fully aligned with Square’s purpose and, together, we hope to continue redefining financial wellness and responsible spending for our customers.”