Why Square (SQ) Is Buying Afterpay (APT) For $29 Billion

By Amit Chowdhry ● Aug 2, 2021
  • Square, Inc. (NYSE: SQ) and Afterpay Limited (ASX: APT) announced a deal under which Square will buy all of the issued shares in Afterpay at an implied value of about $29 billion. These are the details.

Over the weekend, Square, Inc. (NYSE: SQ) and Afterpay Limited (ASX: APT) announced that they have entered into a Scheme Implementation Deed under which Square has agreed to buy all of the issued shares in Afterpay by way of a recommended court-approved Scheme of Arrangement. The deal has an implied value of approximately US$29 billion (A$39 billion) based on the closing price of Square common stock on July 30, 2021 and is expected to be paid in all stock. 

The deal aims to enable the companies to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes. And the closing of the transaction is expected in the first quarter of calendar year 2022, subject to the satisfaction of certain closing conditions.

Afterpay, a pioneering global ‘buy now, pay later’ (BNPL) platform, will accelerate Square’s strategic priorities for its Seller and Cash App ecosystems. And Square plans to integrate Afterpay into its existing Seller and Cash App business units, enable even small merchants to offer BNPL at checkout, give Afterpay consumers the ability to manage their installment payments directly in Cash App, and give Cash App customers the ability to discover merchants and BNPL offers directly within the app.

As of June 30, 2021, Afterpay serves over 16 million consumers and nearly 100,000 merchants globally, including major retailers across key verticals such as fashion, homewares, beauty, sporting goods and more. And Afterpay empowers consumers to access the things they want and need while allowing them to maintain financial wellness and control. Plus Afterpay also assists merchants in growing their businesses by helping to drive repeat purchases, increase average transaction sizes, and provide their buyers with the ability to pay over time. Afterpay is committed to helping people spend responsibly without incurring service fees for those who pay on time, interest, or revolving debt, and supports consumers in a number of countries across APAC, North America and Europe (including under the Clearpay brand).

For Square, BNPL offers an attractive opportunity supported by shifting consumer preferences away from traditional credit, especially among younger consumers, consistent demand from merchants for new ways to grow their sales, and the global growth in omnichannel commerce. And together, Square and Afterpay’s complementary businesses present an opportunity to drive growth across multiple strategic levers like

1.) Enhance both the Seller and Cash App ecosystems — Afterpay’s global merchant base will accelerate Square’s growth with larger sellers and expansion into new geographies while helping to drive further acquisition of new Square sellers. And Afterpay will expand Cash App’s growing product offering, enable customers to manage their repayments, and help customers discover new merchants when the Afterpay App is integrated into Cash App.

2.) Bring added value, differentiation, and scale to Afterpay — Afterpay will benefit from Square’s large and growing customer base of more than 70 million annual transacting active Cash App customers and millions of sellers, which will expand Afterpay’s reach and growth both online and in-person. And Afterpay consumers will receive the benefits of Cash App’s financial tools, including money transfer, stock and Bitcoin purchases, Cash Boost, and more.

3.) Drive long-term growth with meaningful revenue synergy opportunities — Square believes Afterpay will be accretive to gross profit growth with a modest decrease in Adjusted EBITDA margins expected in the first year after completion of the transaction. And Square sees an opportunity to invest behind Afterpay’s strong unit economics as well as attractive growth synergies, including the opportunity to introduce offerings and drive incremental growth for sellers and increased engagement for Cash App customers.

Afterpay’s Co-Founders and Co-CEOs 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. And Square will appoint one Afterpay director as a member of the Square Board following closing.

KEY QUOTES:

“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.”

— Jack Dorsey, Co-Founder and CEO of Square

“Buy now, pay later has been a powerful growth tool for sellers globally. We are thrilled to not only add this product to our Seller ecosystem, but to do it with a trusted and innovative team.”

— Alyssa Henry, Lead of Square’s Seller business

“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. 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.”

— Brian Grassadonia, Lead of Square’s Cash App business

“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. 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.”

— Anthony Eisen and Nick Molnar, Afterpay Co-Founders and Co-CEOs