BNPL giant to be bought in record-breaking deal

Afterpay, the ASX-listed “buy now, pay later” (BNPL) platform, has entered into a scheme implementation deed with Silicon Valley-based digital payments company Square, Inc (Square).

Under the scheme of arrangement, point of sale provider Square (which also offers business loans and payments solutions) will acquire all the shares of Afterpay in a transaction valued at approximately US$29 billion ($39 billion).

The scheme of arrangement is expected to be paid in all stock and represents $126.21 per Afterpay share; a premium of approximately 30.6 per cent to Afterpay’s closing price of $96.66 as at 30 July 2021.

The transaction is expected to close “in the first quarter of calendar year 2022”, subject to shareholder, regulatory and court approvals. 

Following completion of the transaction, Afterpay shareholders are expected to own approximately 18.5 per cent of the combined company on a fully diluted basis. 

Afterpay’s co-founders and co-chief executives, Anthony Eisen and Nick Molnar, will join Square upon completion of the transaction and Square will appoint one Afterpay director as a member of the Square board following closing. 

The Afterpay board has unanimously recommended the transaction to Afterpay shareholders (subject to no superior proposal and an independent expert concluding that the transaction is in the best interests of Afterpay shareholders) and unanimously recommended that Afterpay shareholders vote in favour of the scheme of arrangement.

‘Delivering compelling financial products and services’

According to the two companies, the acquisition will “better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes”.

It will accelerate Square’s strategic priorities for its Seller and Cash App ecosystems, and will see Afterpay integrated into its existing Seller and Cash App business units.

This will enable Square’s small-business customers to offer BNPL at checkout, while giving Afterpay consumers the ability to manage their instalment payments directly in the Cash App and access its financial tools, including money transfer, stock and bitcoin purchases.

It will also give customers the ability to discover merchants and BNPL offers directly within the app.

Jack Dorsey, co-founder and CEO of Square, commented: “Square and Afterpay have a shared purpose. 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.” 

The payments platform noted that Afterpay’s global merchant base will also help accelerate its growth with larger sellers and expansion into new geographies, while helping drive further acquisition of new Square sellers. 

Afterpay’s co-founders and co-CEOs, Mr Eisen and Mr Molnar, added: “By combining with Square, we will further accelerate our growth in the U.S. 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. 

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

“The transaction marks an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world. It also provides our shareholders with the opportunity to be a part of future growth of an innovative company aligned with our vision.” 

The duo will reportedly help lead Afterpay’s respective merchant and consumer businesses as part of Square’s Seller and Cash App ecosystems once the deal completes.

It will be the largest acquisition deal in waiting and one of the largest acquisition deals in Australian history. The announcement led to the S&P/ASX 200 Index opening at 7449.7 on Monday (2 August), its highest opening level on record and went on to gain 90.90 points to 7,483.50, setting a new 100-day high.

Afterpay – which launched in 2014 to enable debt-averse consumers to purchase products in instalments rather than taking out personal loans or credit cards – currently serves more than 16 million consumers and nearly 100,000 merchants globally.

Afterpay looks to banking

While Afterpay has established itself as a disruptor to the credit industry, it is now looking to ramp up a banking offering.

In October last year, Westpac appointed Afterpay as the first partner on its new digital banking as a service (BaaS) platform, which provides Afterpay customers with access to the major bank’s transaction and savings accounts, and cash management tools.

As such, Afterpay has obtained an Australian Financial Services Licence (AFSL) from the Australian Securities and Investments Commission (ASIC) to enable it to provide general financial product advice and distribute basic deposit products and debit cards.

Afterpay expects its foray into banking to commence in October of this year, when it will officially launch its money and lifestyle app, Money by Afterpay.

The Money app offers one daily account with a physical debit card, digital wallet offerings, and the ability to make and receive real-time payments via the New Payments platform.

According to recent data, more than half of Millennial Aussies have used or have considered using BNPL services to manage their money.

However, missed repayments have risen by 83 per cent, according to recent ClearScore research, with ASIC also having previously found that 22 per cent of BNPL customers prioritised paying off BNPL “debt” over loan repayments or bills.

The regulator had discovered that 21 per cent of BNPL users had missed a payment in the prior 12 months and 5 per cent had missed mortgage repayments in order to pay off their BNPL debt.

[Related: Afterpay to roll out banking app]