Twitter’s Dorsey leads $29bn buyout of lending pioneer Afterpay

SYDNEY: Square Inc, the payments firm of Twitter Inc co-founder Jack Dorsey, will purchase buy now, pay later pioneer Afterpay Ltd for $29 billion, creating a transactions giant that will battle banks and tech firms in the financial sector’s fastest-growing business.

The takeover, Square’s biggest deal to date and the largest buyout ever of an Australian firm, underscores the popularity of a business model that has upended consumer credit by charging merchants a fee to offer small point-of-sale loans which shoppers repay in interest-free instalments, bypassing credit checks.

The buy now, pay later (BNPL) market has boomed in the past year as homebound consumers used it to borrow and spend online during the pandemic, and Apple Inc and Goldman Sachs were the latest heavyweights reported last month to be readying a version of the service.

Square’s buyout could pave the way for more acquisitions, with Mastercard Inc, Visa Inc, PayPal Holdings Inc and others showing interest, said Christopher Brendler, an analyst with brokerage group D.A. Davidson.

“(BNPL) is more mainstream now and (this deal) is going to raise attention,” he said.

Shares in Square surged 11%, while those in peer Affirm Holdings Inc rose as much as 17%.

Afterpay shareholders will get 0.375 of Square class A stock for every share they own, implying a price of A$126.21 per share based on Square’s Friday close, the companies said. Afterpay shares closed at A$114.80, up 19%.

The buyout delivers a payday of almost A$2.5 billion ($1.8 billion) each for founders Anthony Eisen and Nick Molnar. China’s Tencent Holdings Ltd, which paid A$300 million for 5% of Afterpay in 2020, will pocket A$1.7 billion.

U.S. USERS

The deal, which eclipses the previous record for a completed Australian buyout, locks in a remarkable run for Afterpay, whose stock was worth just A$10 in early 2020.

The Melbourne-based company has signed up millions of users in the United States in the past year, making it one of the fastest-growing markets for BNPL and spurring broad interest in the sector.

“Acquiring Afterpay is a ‘proof of concept’ moment for buy now, pay later,” Truist Securities analysts said, adding Square would now be a “formidable” competitor for Paypal, unlisted Swedish startup Klarna Inc and others.

Klarna was worth $46 billion in its last fundraising in June. Shares in Australian BNPL peers Zip Co Ltd and Sezzle Inc also closed higher on Monday.

“Not surprised those stocks are increasing on future consolidation speculations,” D.A. Davidson’s Brendler said. “Competition is heating up and they also have platforms that are very attractive.”

Talks between the two companies began more than a year ago and Square was confident there was no rival offer, a person with direct knowledge of the deal told Reuters.