Square, the payments firm of Twitter co-founder Jack Dorsey, will purchase buy now, pay later pioneer Afterpay Ltd for $29 billion (€24.4 billion), creating a global transactions giant in the biggest buyout of an Australian firm.
The deal, the largest acquisition to date for Square, will allow it break into the consumer lending market. Square recently launched its banking operations, including chequing and savings accounts for small businesses, and offers loans.
The takeover underscores the popularity of a business model that has upended consumer credit by charging merchants a fee to offer small point-of-sale loans which their shoppers repay in interest-free instalments, bypassing credit cheques.
It also locks in a remarkable share-price run for Afterpay, whose stock traded below 10 Australian dollars in early 2020 and has since soared as the Covid-19 pandemic – and stimulus payments to a workforce stuck at home – saw a rapid shift to shopping online.
The all-stock buyout would value the shares at A$126.21 (€78.12), the companies said in a joint statement on Monday. Afterpay shareholders will get 0.375 of Square class A stock for every share they own.
That means a payday of A$2.46 billion (€1.52 billion) each for Afterpay's founders, Anthony Eisen and Nick Molnar. China's Tencent Holdings, which paid A$300 million (€185.6 million) for 5 per cent of Afterpay in 2020, would pocket A$1.7 billion (€1.05 billion).
"Acquiring Afterpay is a 'proof of concept' moment for buy now, pay later, at once validating the industry and creating a formidable new competitor for Affirm, PayPal and Klarna, " Truist Securities analysts said. "We expect Square will invest heavily to integrate Afterpay and accelerate organic revenue growth."
“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,” said Mr Dorsey in the statement.
Created in 2014, Afterpay has been the bellwether of the niche no-credit-checks online payments sector that burst into the mainstream last year as more people, especially youngsters, chose to pay in instalments for everyday items during the pandemic.
Buy-now-pay-later firms lend shoppers instant funds, typically up to a few thousand dollars, which can be paid off interest-free. As they generally make money from merchant commission and late fees – and not interest payments – they sidestep the legal definition of credit and therefore credit laws.
That means providers are not required to run background checks on new accounts, unlike credit card companies, and normally request just an applicant’s name, address and birth date. Critics say that makes the system an easier fraud target.
The loose regulation, burgeoning popularity and quick uptake among users has led to rapid growth in the sector, and has reportedly even driven Apple to launch a service.
Talks between the two companies began more than a year ago and Square was confident there was no rival offer, said a person with direct knowledge of the deal. – Reuters/Bloomberg