Monday, December 5, 2022

Square bags buy now, pay later firm Afterpay for $29 bln

Square bags buy now, pay later firm Afterpay for $29 bln

(Reuters) - Square Inc on Monday said it has agreed to purchase buy now, pay later (BNPL) pioneer Afterpay Ltd to create a global online payments giant, offering a 30% premium in a share-swap deal that is set to be Australia's biggest-ever buyout. 

The following are quotes on the deal from analysts, strategists and market watchers.


Square's all-scrip A$39 billion bid (A$126.21/share) marks the potential for Afterpay to achieve an increasingly rapid acceleration in its global trajectory.

Given the nature of the Square business and their Merchant and Consumer ecosystem, we see few realistic competing suitors beyond the major technology giants...

Now that Australia-New Zealand has fallen behind the United States in terms of group contribution, we believe Afterpay would likely face limited regulatory headwinds.

Few other suitors are as well-suited as Square. With ... PayPal already achieving early success in their native BNPL, other than major U.S. tech-titans ( Inc, Apple Inc lobbying an 11th hour bid, we expect a competing proposal from a new party to be low-risk.


There is strategic merit behind the merger (customer and merchant growth/cross sell) and with a scrip deal, Afterpay shareholders can share in the benefits... We view a competing bid as unlikely at this stage.


The implied valuation of Square's offer is materially above our price target, but is almost perfectly in line with the consensus price target (FactSet) for Afterpay of $125.99. UBS does not cover Square, though we highlight that the consensus price target for Square is $281.76, which based on the fixed exchange ratio of 0.375 and the same foreign exchange assumption that Afterpay is using, would imply a A$143.82 valuation per Afterpay share.


As investors have been wondering what the 'Killer App' was going to be to link Square's two ecosystems more meaningfully together, it would appear that fully integrating BNPL (via Afterpay) into and between Cash App and Seller is the answer.


At first blush, we contend acquiring Afterpay is a "proof of concept" moment for BNPL, at once validating the industry and creating a formidable new competitor for Affirm Holdings Inc, PayPal and Klarna Inc...

We expect Square will invest heavily to integrate Afterpay and accelerate organic revenue growth.


It's a really market-defining transaction. It's literally the largest corporate transaction in Australian history. It really moves the needle and validates the work that Afterpay has been doing from a valuation point of view.


We view Square's all-stock acquisition of Afterpay as transformational, as it enables two of the world's trailblazing payments disruptors to come together to further augment the platform and relegate old-world retail banks. Afterpay now has the formidable financial weight and imagination of Silicon Valley behind it.


Square's entry into the BNPL space will likely come as no surprise to most investors... Instead the debate will revolve around the decision to buy versus build, given Square's success in rolling our internally developed offerings and the path taken by fellow super-app developer Paypal...

We note ... Afterpay boasts a scaled global BNPL business which would be difficult if not impossible for Square to replicate longer-term.


While the acquisition is not cheap, we think the deal makes strategic sense as Afterpay complements both Square's merchant and consumer ecosystems. We also believe Afterpay's exposure to non-U.S. merchants and consumers provides Square with the ability to more cost effectively build out exposure internationally. Lastly, the combination provides Square with a stronger moat around its business model by adding additional products to new and existing consumers and merchants, accelerating the flywheel effect for the company.

I think this is a recognition that BNPL will be an enduring payment method so the big players in the payments space want to make sure they are exposed...

Time will tell whether any more come to the table. There are many other potential suitors - some quite logical - but it may also flush out some left field ones as well...

I think payments providers are increasingly seeing BNPL is an offering amongst a suite of products, rather than just a standalone product in itself.

The takeover makes sense for both sides. It's a big multiple buying another big multiple to deliver most market/client exposure.

Afterpay management selling at a discount to February high after pitching the growth outlook potential suggests we may be near the peak in the fintech optimism.

I am not expecting a counter offer for Afterpay but it does flag the industry consolidation in BNPL has started.


Not sure it was the most generous offer considering Afterpay did hit $160. Suspect the market may be a little underwhelmed...

Biggest-ever takeover at a huge multiple, it will have repercussions in the sector...

Zip Co Ltd is the one that is more interesting now, given Afterpay has now been taken off the board, and since it is the closest to Afterpay with the biggest U.S. business.