Australia’s biggest buyout: What you need to know about Square-Afterpay takeover deal

California-based financial services and digital payments company Square Inc (NYSE:SQ) has announced its acquisition of Australian Fintech major Afterpay Ltd (ASX:APT).

With the transaction valued at US$29 billion (AU$39 billion), this is the biggest buyout in the known history of Australia. This led to an immediate rally in the stocks of both the companies. While Afterpay soared 24% on the ASX after the announcement, Square surged 10% in New York.

What will Square get from the deal?

Afterpay is a category leader in the growing buy now pay later (BNPL) vertical, with focus on helping consumers make online payments and manage their financial wellbeing responsibly as well as empowering merchants to grow their business. After this transaction, Square will integrate Afterpay into two of its existing ecosystems aimed at strengthening the connection between its Seller and Cash App ecosystems and “unlocking cross-sell opportunities with Afterpay”.

                       

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“Together, Square and Afterpay will focus on delivering growth at scale and intend on investing behind transformative opportunities to drive long-term profitable growth,” Square said in a presentation. 

So, what’s in it for Afterpay shareholders?

Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay ordinary share they own on the record date. Square may elect to pay 1% of total consideration in cash.

But what happens to the governance of Afterpay after the acquisition?

As discussed earlier, Afterpay is set to be integrated into Square’s Seller and Cash App ecosystems. The Australian fintech’s co-founders and co-CEOs Anthony Eisen and Nick Molnar will be joining Square upon closing of the transaction. Mr Eisen and Mr Molnar will be at the helm of Afterpay’s respective consumer and merchant businesses as part of Square’s Cash App and Seller segment. However, they would be reporting to Brian Grassadonia and Alyssa Henry, respectively. One of them will make it to the board as well, as Square has committed that it will appoint one Afterpay director as a member of the the Board of Directors immediately after the deal is closed.

So, when is this deal supposed to close?

As per Square, the deal is expected to close in the first quarter of calendar year 2022. This would need so much time because they will have to satisfy a gamut of conditions precedent as is customary for merger and acquisition transactions. These conditions, among others, include approval by the shareholders of both companies, receipt of required regulatory approvals and no material adverse effects in relation to Afterpay or Square.

What does this mean for the BNPL sector on the whole?

The deal would hasten the buy-now-pay-later sector’s march towards mainstream. If Square-Afterpay deal succeeds in creating synergies out of the BNPL service, we would see many more e-commerce companies eyeing the BNPL fintech players. This would mean that the M&A activity would shoot up and valuations would skyrocket. Also, since there is precedent now, many investors – both listed and unlisted – would be willing to bet their bucks on the BNPL companies. This would help BNPL players in growing the scale of their operations.

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