Square, Inc’s $29bn Acquisition of Afterpay

By Adil Amlaiky, Anish Umasuthan, Greta Horn, and Blake Dal Santo (McGill University), and Jonathan Fuchs and Thushara Kantimahanti (London School of Economics)

 

Overview of the deal


Acquirer: Square, Inc.

Target: Afterpay Limited

Total Transaction Size: $29 billion

Closed date: Pending

Acquirer advisor: Morgan Stanley

Target advisor: Goldman Sachs, Qatalyst Partners


Jack Dorsey’s Square plans to acquire Australian fintech Afterpay in an all-stock deal, in an effort to capitalize on the growing popularity of buy now, pay later (BNPL) among consumers worldwide. Particularly popular among younger demographics, these plans typically allow users to circumvent cumbersome credit checks and spread the cost of their purchases over a series of interest-free installments. The demand for these plans has prompted competitors such as Monzo, PayPal, and Revolut to explore expansion opportunities into the rapidly-growing BNPL market.


Afterpay is a trailblazer in the BNPL trend, with over 16.2 million global users, easily making it a leader among pure-pay BNPL providers. With Square’s sights set strategically on Afterpay, this move could prove to be highly effective in a $10 trillion global online payments market, within which BNPL technology has only managed to capture 2% of the total industry. Square plans to introduce Afterpay to its CashApp, which already has over 70 million active users annually. The transaction is subject to customary regulatory compliance as well as shareholder approval of both companies. If successful, this transaction has the potential to shake up the online payments industry and make BNPL a household name.


“The combined investment expertise and scale will enhance the service offering to NN Investment Partners’ clients, including NN Group” - David Knibbe, CEO (NNIP)

Company Details: (Acquirer - Square Inc.)


The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting across its 20 divisions.


Square, Inc, headquartered in San Francisco, California, is an American financial services and digital payments firm founded in 2009 by Jim McKelvey and Twitter founder Jack Dorsey. The company launched its first platform in 2010, enabling its sellers to accept credit card payments. There are two key segments to Square, Inc: Seller and Cash App. Seller provided various managed payment services, software solutions, hardware and financial services products to vendors for use within their businesses, while Cash App allows for peer-to-peer payments, Cash Card transactions, bitcoin, and stock investing that simplifies the sending, spending and storing of money.


Founded in 2009, headquartered in St. Louis, Missouri

Number of employees: 5477 (2020)

Market Cap: $112.90B (as of 10/09/2021)

EV: $114.54B

LTM Revenue: $15.93B

LTM EBITDA: $433.27M

LTM EV/Revenue: 7.19

LTM EV/EBITDA:264.37


Company Details: (Target - Afterpay Limited)


Afterpay is an online installment payment program which has been operating in the United Kingdom, New Zealand, and the United States over the last few years. It was also officially launched in Canada as of August 2020. It is particularly popular with millennial consumers, who seem to appreciate the use of debit cards to pay for purchases to avoid credit card debt, in addition to the ease of use and simple payment process without additional interest or fees beyond the initial price of the product. Afterpay also reported that they are currently working with over 64,000 retailers worldwide, as of January 2021.


Founded in 2014, headquartered in Melbourne, Australia

CEO: Anthony Eisen

Number of employees: 696

Market Cap: $36.833B (as of dd/mm/yyyy)

EV: 36.83B

LTM Revenue: $836.05M

LTM EBITDA: $-42.468

LTM EV/Revenue: 44.05

LTM EV/EBITDA: -867.24