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Square to acquire Australian fintech Afterpay in $29B deal


Payments company Square of Twitter founder Jack Dorsey announced the buyout of Australian online installment operator Afterpay in exchange for its own shares worth $ 29 billion. So, the deal could be a record in Australian history. Square plans to close the deal in the first quarter of 2022.

The takeover underscores the popularity of a business model that has revolutionized consumer lending; charging sellers a fee for providing small-scale loans at retail outlets; which their buyers pay in interest-free installments, bypassing credit checks.

The corporate success spurred an impressive rise in Afterpay stock prices; which traded below $ 10 in early 2020 and have skyrocketed since then as the COVID-19 pandemic and stimulus payments to the public during lockdown led to a rapid rise in online shopping.

The shares will be repurchased at a price of $ 126.21, the companies said in a joint statement.

The deal involves payments of $ 2.46 billion to each of Afterpay founders Anthony Eisen and Nick Molnar. China’s Tencent paid $ 300 million for 5% Afterpay in 2020.

Integration of Square and Afterpay

“The Afterpay acquisition is an important moment for the buy-now-pay-later (BNPL) concept to be recognized. The industry giants have recognized its advantage. It is clear that Affirm, PayPal and Klarna may have a formidable competitor”, analysts at Truist Securities say.

“We expect Square to invest heavily in the Afterpay integration and accelerate revenue growth”, they added.

“We founded our business to make the financial system fairer and more accessible. Afterpay is a trusted brand that lives up to these principles. Together, we can modernize our ecosystems to deliver even more compelling products and services to merchants and consumers”, Jack Dorsey said in a statement.

The Afterpay founders said the deal marked important recognition for the Australian tech sector.

The Australian Competition and Consumer Protection Commission; which will have to approve the deal, said it will carefully consider the merger once all the details are provided.

Afterpay is the leader in online payments without credit checks

Launched in 2014, Afterpay has become a leader in the niche online payments sector without credit checks that burst into the mainstream last year as more people decided to pay in installments for everyday goods during the pandemic.

BNPL firms provide buyers with instant funds, usually up to several thousand dollars, which can be paid out interest-free.

Because they usually make money from commissions and late payments rather than paying interest; they circumvent the legal definition of credit and therefore credit laws.

Lax regulation and rising popularity of the concept have led to rapid expansion of the sector and reportedly even prompted Apple to launch a similar service.

Is the deal close to completion?

As for Afterpay, the deal with Square provides it with a large customer base in its main target market, the United States, where its sales in fiscal 2021 nearly tripled to $ 11.1 billion.

The deal looks close to completion in the absence of a better offer, said Ord Minnett analyst Philip Chippindale.

Negotiations between the two companies began more than a year ago, and Square was confident that there was no competing offer, said a source with direct knowledge of the deal.

The deal includes a cancellation clause triggered by certain circumstances, such as if Square’s investors do not approve the takeover.

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