Square revealed today that it is purchasing Australian purchase now, pay later behemoth Afterpay in a $29 billion all-stock deal in a mega-deal that will shock the fintech sector.
Subject to customary closing conditions, the transaction has scheduled to close in the first quarter of 2022. It values Afterpay at a premium of more than 30% over its most recent closing price of A$96.66.
In a statement, Square co-founder and CEO Jack Dorsey stated that the two fintech behemoths have the same objective. They founded our firm with the goal of making the financial system more equitable, accessible, and inclusive, and Afterpay has built a trusted brand that represents those ideals.
The merger of the two corporations would result in a payments behemoth unlike any other. The purchase now, pay later market has essentially expanded in the last 18 months. It is particularly appealing to younger generations intrigued by the concept of not using credit cards or paying interest and instead opting for instalment loans. That has become prevalent online and in retail outlets.
Square’s strategic priorities
According to the companies, the integration of Afterpay will accelerate Square’s strategic priorities for its Seller and Cash App ecosystems. Square plans to integrate Afterpay into its existing Seller and Cash App business divisions, allowing even the tiniest retailers to make purchases now and pay later at checkout. Afterpay customers will also manage their instalments directly in Cash App due to the connection. Customers using the Cash App will locate merchants and buy now, pay later (BNPL) deals immediately within the app.
Anthony Eisen and Nick Molnar, co-founders and co-CEOs of Afterpay, will join Square upon the transaction’s completion and help run Afterpay’s respective merchant and consumer businesses. Square announced the appointment of one Afterpay director to its board of directors. For every share of Afterpay stock owned, shareholders will get 0.375 shares of Square Class A stock. According to the companies, this suggests a price of around A$126.21 per share based on Square’s Friday closing.
The implicit valuation of Square’s offer is significantly higher than our price objective. However, it is nearly identical to the consensus price target (FactSet) for Afterpay of $125.99. Although UBS does not cover Square, the consensus price target for the stock is $281.76. Based on the fixed exchange ratio of 0.375 and the identical foreign exchange assumption as Afterpay, this would suggest a valuation of A$143.82 for each Afterpay share.
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