Afterpay to be acquired by Square in $39 billion deal

Aussie buy-now, pay-later leader Afterpay is set to be acquired by Square, the payments giant headed up by Twitter founder Jack Dorsey, in a deal worth US$29 billion ($39 billion).

Square announced the two businesses have entered into a ‘scheme implementation deed’ that will see Square acquire all of the issued shares in ASX-listed Afterpay. The value is expected to be paid entirely in stock.

It’s something of a shock exit for Aussie-born BNPL pioneer Afterpay.

Founded in 2014 by Aussies Nick Molnar and Anthony Eisen, it is now a global leader in an increasingly crowded — and controversial — space, with more than 100,000 retailers on the books and 16.2 million customers.

At the time of writing, Afterpay has a market cap of $27.99 billion. According to the Australian Financial Review’s 2021 Rich List, both founders currently have a net worth of more than $2.6 billion.

Square is listed on the New York Stock Exchange, and currently has a market cap of US$112.6 billion ($153.4 billion).

Molnar and Eisen are both expected to join Square on completion of the deal. One Afterpay director will also be appointed to the Square board.

In a statement, Dorsey pointed to the “shared purpose” of the two fintechs.

“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,” he said.

“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.”

In a joint statement, Molnar and Eisen said the acquisition will support Afterpay’s further growth in the US and globally, and boost its capability to offer new capabilities to customers.

“We are fully aligned with Square’s purpose and, together, we hope to continue redefining financial wellness and responsible spending for our customers,” they said.

In a post on LinkedIn, Molnar said the deal represents a “really significant moment” for the Australian tech sector more broadly, “which we believe will further connect our emerging tech sector to Silicon Valley”.

“It’s amazing to see Australian innovation and entrepreneurship recognised on this global level,” he added.

Chief executive of FinTech Australia Rebecca Schot-Guppy called the exit “fantastic news for the Australian fintech industry and a huge achievement for Afterpay”.

“It’s also a testament to the strength of the Australian ecosystem and the progress to the digital lead economy we are striving for,” she told SmartCompany.

It’s this kind of deal that puts the Aussie ecosystem on the map, and can attract further interest from overseas investors, or bring global businesses into Australia, she added.

“We expect to see activity and interest in our industry continue to skyrocket on the back of this transaction.”

The transaction is expected to close in the first quarter of 2022, subject to closing conditions.

What does it mean for merchants?

On LinkedIn, Molnar suggested that together, Square and Afterpay could offer a better platform for both merchants and consumers.

“Our two organisations have a singular, aligned mission to power an economy in which everyone wins,” he said.

Speaking to SmartCompany, Jason Andrew, chartered accountant and founder of accounting and operational finance firm SBO, says he is inclined to agree.

He doesn’t think the Afterpay product will change, he explains. But Square has a lot more features and products in their ecosystem that Aussie merchants may be able to gain access to.

In particular, it has a whole suite of tools designed to help small businesses manage their payments.

Square has a huge presence in the US, he explains, but is not quite as well known in Australia — yet.

Rolling out further here using Afterpay’s network would be a natural next step, and advantageous to Afterpay’s customers.

The next evolution in BNPL?

This acquisition also feels like something of a next step in the broader evolution of the BNPL sector.

Previously, Andrew says he might have predicted Afterpay would pivot into banking, expanding its suite of services tailored to millenial and Gen-Z consumers. Joining Square also makes sense, he notes.

The point is, there’s an increasing awareness that just providing a BNPL service is no longer enough.

BNPL is becoming commoditised, Andrew explains.

“It’s more of a feature than its own brand.”

This is a business model with a low barrier to entry, and we’re seeing more and more players entering the space, including giants like Paypal and CommBank, which don’t charge merchant fees.

Afterpay’s advantage was that it was the first mover in the market, he notes.

“Everyone else is just catching up.”

So, Andrew believes Afterpay’s news will get other executives in BNPL companies thinking about their own strategies.

We can expect to see further consolidation in the space as smaller companies get acquired or merge, he suggests, while others will look for ways to add to their offerings.

“There needs to be more value proposition, for sure.”

Finally, Andrew notes that it’s not unprecedented for a retail tech company to invest heavily in BNPL providers. Shopify, for example, is an investor in Affirm, one of the leading split-payment providers in the US.

When you break it down, BNPL is a back-end platform, he explains. And Afterpay was the first that really had its own brand identity.

Now that we’re seeing a ‘featurisation’ of such products, the real winners, he says, will be those that “own the customer”.

In this case, that’s Square.