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The post Square Stock Pops on Afterpay Acquisition appeared first on Millennial Money.
Over the weekend, mobile payment company Square (NYSE: SQ) announced that it will acquire Afterpay (OTC: AFTPY) in an all-stock deal that will create a multinational fintech juggernaut.
In merging with Australia-based Afterpay, Square aims to expand into the booming “buy now, pay later” (BNPL) industry while offering additional financial services products to consumers and merchants. The deal values Afterpay at $29 billion.
Investors cheered the news, sending Square stock up 13% as of Monday afternoon trading. American Depository Receipts (ADRs) for Afterpay, which trade over the counter in the U.S., jumped 38%. Square also reported second-quarter earnings yesterday, which were mixed relative to expectations.
Combining two complementary fintech companies
Afterpay is a BNPL pioneer that has been enjoying steady growth, with a booming base of consumers and merchants alike. As of June, Afterpay had 16.2 million active consumers and 98,000 active merchants on its BNPL platform.
Its gross merchant volume has quadrupled over the past two years, to $15.8 billion, with revenue posting a 92% compound annual growth rate over that same time to reach $693 million.
“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 Jack Dorsey said in a release. “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.”
Square’s vision is to integrate Afterpay into its Seller platform as well as its Cash App, strengthening the link between them. A merchant will be able to offer interest-free financing through the Seller app, while consumers can manage their installment plans directly in the Cash App.
How the deal is structured
Square expects the acquisition to contribute to gross profit in the first year after the transaction closes (set for the first quarter of 2022), before including synergies.
Square did not specify how much it estimates revenue synergies will be but said the combined company can pursue many additional cross-selling opportunities. Adjusted EBITDA margins may decline modestly as Square invests in integrating the platforms to prepare for long-term profitability.
Afterpay shareholders will receive 0.375 shares of Square for each share of Afterpay that they hold. As an all-stock deal, Afterpay shares will likely continue to fluctuate in lock step with Square stock until the deal closes.
Afterpay’s co-founders and co-CEOs Anthony Eisen and Nick Molnar will join Square once the deal is finalized, and an Afterpay director will join Square’s board.
The post Square Stock Pops on Afterpay Acquisition appeared first on Millennial Money.
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