Square Plans to Buy Afterpay For USD 29 Billion

The US-based digital payment company Square announced the plan to acquire Afterpay, an Australia-based financial technology company. In the press release, the former firm said that the acquisition deal would sum up to USD 29 Billion in an all-stock deal. Square’s prime objective to buy the company is to expand itself into the installment loan market and increase its penetration in Australia.

The acquisition will enable the joining of two financial technology companies to disrupt the traditional banking system. The wholesome transaction is anticipated to be closed by the first quarter of 2022. Under the joint statement released by the two firms, Afterpay shareholders will receive 0.375 shares of Square stock. This transaction represents that Square will be paying a 30% premium to the closing price of Afterpay. If the deal completes, the deal would be marked as the biggest deal in the history of Australia.

Afterpay’s USP is to offer customers a buy now and pay later (BNPL) option. This means that customers can buy the product and pay for it in four installments without any interest if that individual pays on time. Meanwhile, the retailers or the merchants pay the company a fixed percentage or fee on every order. According to the data from Adobe Analytics, the adoption of BNPL services has increased 300% amidst the COVID-19 pandemic. Now, Square wants to integrate this service on its Cash App, a competitor to Paypal’s Venmo.

Square Executives’ Statement on Purchase

“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,” said Jack Dorsey, CEO of Square in a statement. “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 addition of Afterpay to Cash App will strengthen our growing networks of consumers around the world while supporting consumers with flexible, responsible payment options,” said Brian Grassadonia, Executive & General Manager of Cash App. “Afterpay will help deepen and reinforce the connections between our Cash App and Seller ecosystems, and accelerate our ability to offer a rich suite of commerce capabilities to Cash App customers.” Afterpay’s acquisition will mark the company’s second investment to expand its market share. In March 2021, Square announced the purchase of a majority stake in music streaming service Tidal for USD 297 Million.

In the quarter ending in June, Square reported USD 4.7 Billion in revenue and posted USD 204 Million in profit. It reported that it handled USD 42.8 Billion in transactions in the second quarter (Q2) 2021. The company’s Cash app generated USD 3.33 Billion in revenue, up by 177% year-over-year.

Afterpay CEO’s Statement on Acquisition

“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,” said Anthony Eisen and Nick Molnar, Co-CEOs said in a statement. The company currently serves around 16 Million customers and has 100,000 merchants that use its services.

On the news of the acquisition, Afterpay’s share price soared 23% on Monday morning. Even though the BNPL market is highly competitive, it is expected to provide Square a huge leverage in the digital payment market. Now, the deal has been approved by both companies’ board of directors; however, it has not got a thumbs up from Afterpay’s shareholders. Even though both parties have agreed on the deal, the deal has not got a green light from regulatory bodies. Last year, the credit card company Visa agreed to acquire financial technology company for USD 5.2 Billion. However, the Department of Justice blocked the deal by filing an antitrust complaint against Visa.