Square, the payments company co-founded by Jack Dorsey, is set to acquire Afterpay, a pioneer in the buy now, pay later (BNPL) space, in a deal worth $29 billion. This marks the largest buyout of an Australian firm to date and creates a global force in the transactions industry.

The buy now, pay later business model has gained immense popularity, as it offers customers the option to make interest-free instalment payments for their purchases. This model has disrupted the traditional consumer credit industry by providing a more accessible and flexible payment option without the need for credit checks.

Afterpay, also known as Clearpay in some markets, has experienced a significant surge in its stock price. Just a year ago, its shares were valued at less than A$10, but they have since skyrocketed due to the increased demand for online shopping during the Covid-19 pandemic. The all-stock acquisition values each Afterpay share at A$126.21 ($92.65), resulting in substantial gains for its founders and shareholders.

The acquisition of Afterpay by Square has major implications for the buy now, pay later industry. It serves as validation for this payment concept and creates a formidable competitor for companies like Affirm Holdings, PayPal Holdings, and Klarna. Analysts expect Square to invest heavily in integrating Afterpay and driving organic revenue growth.

The market response to the acquisition has been positive, with Afterpay’s share price surpassing Square’s indicative purchase price. Additionally, the news has also boosted the shares of another BNPL player, Zip Co. Square’s CEO, Jack Dorsey, has emphasized the company’s commitment to fostering a fair and inclusive financial system, and believes that Afterpay’s trusted brand aligns well with Square’s mission.

The founders of Afterpay view this deal as a significant recognition of the innovation within Australia’s technology sector. This acquisition sets a new record for completed Australian buyouts, surpassing the $16 billion sale of Westfield’s global shopping mall empire in 2018.

Afterpay faces competition from other players in the BNPL space, such as Klarna and PayPal Holdings. Since its establishment in 2014, Afterpay has been a leader in the no-credit-checks online payments sector, which gained widespread popularity during the pandemic. BNPL providers offer instant funding options to shoppers, typically up to a few thousand dollars, with the ability to pay off the amount interest-free. Revenue is generated through merchant commissions and late fees, allowing them to bypass the regulations of the traditional credit industry.

The BNPL sector has experienced rapid growth driven by loose regulation and increasing consumer demand. This growth has even caught the attention of Apple, as the company recently launched a similar service. The acquisition by Square provides Afterpay with access to a large customer base, particularly in its key market, the United States, where its sales nearly tripled in fiscal year 2021.

Overall, this acquisition strengthens Square’s position as a major player in the payments industry and highlights the growing importance of the buy now, pay later sector. The deal is expected to be finalized in the coming months, pending regulatory approval.

Useful links:
1. Square to buy Australian buy now, pay later giant Afterpay in $29bn deal
2. Square to buy ‘buy now, pay later’ pioneer Afterpay in $29 bln deal