Square to Acquire Buy Now, Pay Later Leader Afterpay in $29 Billion Stock Deal

Square announced Sunday night it plans to acquire Australian Buy Now, Pay Later (BNPL) fintech startup for $29 billion in an all-stock deal.

The offer represents a 30 percent premium of Afterpay’s stock value at the close of Friday. Afterpay stockholders are expected to own about 18.5 percent of the merged companies.

Afterpay’s Co-Founders and Co-CEOs Anthony Eisen and Nick Molnar will join Square upon completion of the transaction and help lead Afterpay’s respective merchant and consumer businesses, as part of Square’s Seller and Cash App ecosystems. Square will also appoint one Afterpay director as a member of the Square Board following closing.

“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,” said Jack Dorsey, Co-Founder and CEO of Square.

“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,” added Anthony Eisen and Nick Molnar, Afterpay Co-Founders and Co-CEOs.

“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.”

Afterpay operates in Australia, New Zealand, Canada, United States, and the U.K. In the U.K., the service is known as Clearpay.

Afterpay Leading Fintech in Buy Now, Pay Later Loans

Afterpay is one of the leading fintech companies in the Buy Now, Pay Later loan space and has served over 16 million consumers and nearly 100,000 merchants globally.

BNPL loans allow consumers to purchase items interest-free, usually in four equal installment payments, enticing shoppers to make higher prices purchases. While consumers receive a short-term interest-free loan, merchants pick up the cost of the loan through higher transaction fees.

For retailers, the additional cost is worth the expense as the deferred loan program typically results in higher sales, especially among younger shoppers with less credit history.

Buy Now, Pay Later Complements Square’s Payments Business

The BNPL financial segment has been red hot lately. Apple seemingly shocked the BNPL world with its recent announcement that it will enter the BNPL space soon and last week Visa revealed it too is working on a BNPL solution for its technology partners.

And PayPal launched a BNPL option a year ago as other fintech such as Afterpay and Klarna saw accelerated growth during the Covid pandemic with a lot of upside.

A recent survey by Motley Fool found nearly 38% percent of consumers had used BNPL in July 2020 to make a purchase, and in less than one year, that number jumped to over 55%.

Also, the largest growth of BNPL was in the 18-24 (62%) and 55+ (98%) age ranges. And among respondents that had never used a BNPL loan before, 53% said they were likely to consider it within the next year.

This acquisition by Square is an expensive catch-up in this rapidly growing payments segment they have not served. But they gain Afterpay’s leading market expertise in BNPL loans and a solid foundation of participating merchants, both of which offer synergies to their existing business.

The transaction is subject to conditions precedent as is customary for transactions of this nature, including, among other things, receipt of required regulatory approvals and the approval of shareholders of both companies.

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