US-based financial services and digital payments company Square Inc. has revealed plans to buy Australian financial services firm Afterpay for $29 billion.
The purchase will create an international transactions giant in the biggest buyout of an Australian firm, as Square aims to expand further into the booming installment loan market.
Jack Dorsey’s payments company announced the $29 billion, all-stock deal on Sunday evening. “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,” Square CEO and Twitter co-founder Dorsey said.
Square already offers installment loans, which it said has been a powerful growth tool for Square’s core seller business. The San Francisco-based payments company plans to integrate Afterpay into both its seller and Cash App ecosystems.
According to corporate regulator Australian Securities and Investments Commission (ASIC), Afterpay is Australia’s largest buy-now-pay-later service, with 73% of the total market by dollar value. Founded in 2014, Afterpay has been at the forefront of the buy-now-pay-later sector whose popularity burgeoned during the pandemic, as more people chose to pay in installments for everyday items. Buy-now-pay-later firms lend shoppers instant funds, which can be paid in installments with no interest.
The rapid growth in the sector has moved other companies like PayPal to launch similar services.
“Acquiring Afterpay is a ‘proof of concept’ moment for buy now, pay later, at once validating the industry and creating a formidable new competitor for Affirm Holdings Inc, PayPal Holdings Inc, and Klarna Inc,” Trust Securities analysts said.
The purchase also locks in a remarkable share-price run for Afterpay, whose stock traded below A$10 in early 2020 and has since soared as the COVID-19 pandemic caused a rapid shift in consumer behavior to online shopping.
“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 Dorsey in the statement. To integrate the Australian firm and accelerate organic revenue growth, Square is expected to invest heavily in Afterpay. Together with Afterpay, Square plans to deliver even more compelling products and services for merchants and consumers, putting the power back in the hands of the consumers and merchants.
For Afterpay, the deal marked “an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world”. The deal also delivers to Afterpay a large customer base in its main target market, the United States, where its fiscal 2021 sales nearly tripled to A$11.1 billion in constant currency terms.
Square said it will undertake a secondary listing on the Australian Securities Exchange to allow Afterpay shareholders to trade in shares via CHESS depositary interests (CDIs).
The purchase is subject to approval by The Australian Competition and Consumer Commission, which said it had just been notified of the transaction and “will consider it carefully” immediately the details get placed before them.