Square’s acquisition of Australian tech firm Afterpay for $39 billion will be a boon for the local tech sector and might make the ASX more attractive for other growing companies, according to high-profile members of the industry.
On Monday morning Square announced that it had agreed to buy all of the issued shares in Buy Now Pay Later (BNPL) giant Afterpay, worth approximately $39 billion. The deal, which is expected to close in the first three months of next year, is the biggest ever merger and acquisition agreement in Australian history.
As part of the deal, Afterpay’s two Australian founders will be paid $2.7 billion each in Square stocks for their own Afterpay shares, and will be able to offload these in the US or Australia.
Tech industry veteran and AirTree Ventures founder Daniel Petre said it’s a big win for Afterpay and the local sector.
“It is a great result but not unique. There are a large number of billion-dollar Australian technology companies that will turn away from acquisition approaches because they can see a path to greater success as an independent company,” Mr Petre told InnovationAus.
“I am not of the view that an Australian company being acquired by a global player is in any way bad for our tech sector. Any acquisition releases capital that Australian employees and investors can use to build more great Australian tech companies.”
Mr Petre said that despite its significant success and growth in recent years, Afterpay was in the highly competitive and difficult BNPL sector and ultimately saw more growth through the acquisition than going it alone.
“The Afterpay guys did a great job in getting to scale ahead of the pack. However, the whole BNPL area is one where there is zero loyalty from either vendors or customers and in the end it was going to be a game of which BNPL player offered the lowest cost to the vendor wins,” he said.
“They had a valuation that was stratospheric and the only way it could really grow long-term was by finding a differentiated product offering. They have sold off script which means they are happier holding Square script as opposed to Afterpay script – they see more growth in Square script with Afterpay as a part of it, as opposed to what they could see for themselves being independent.
“It’s a good deal for Square. They have a differentiated and very well featured payments platform. This deal lets them put in a lead generation tool to bring in more customers to vendors that use Square.”
The deal will “enable the companies to better deliver compelling financial products and services that expand access to more consumer and drive incremental revenue for merchants of all sizes”, according to the announcement by Square.
“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 co-founder and CEO Jack Dorsey said.
“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.”
Afterpay was founded in 2014 and listed on the ASX two years later. Its huge exit may make the Australia a more attractive place for public listings, and ensure other tech companies choose to say local for this, M8 Ventures general partner Alan Jones said.
“The ASX historically hasn’t been a great market for listing an Australian tech company. While one great outcome doesn’t entirely prove the doubters wrong, the fact that the ASX’s biggest ever exist has come from a tech stock, and that the company was only founded in 2014, certainly has to make a massive difference,” Mr Jones told InnovationAus.
“If only the ASX had been more attractive to Atlassian and Canva, not to mention Deputy, Rokt, Airwallex, Culture Amp and SafetyCulture.”
Not everyone was rosy about the acquisition though, with shadow assistant minister to Treasury Dr Andrew Leigh tweeting that “the world doesn’t need more mergers of tech giants…even if the deal is structured on a buy-now-pay-later basis”.
The competition watchdog will be having a look at the acquisition too.
“It is early days and has just been notified to us so we will consider it carefully once we see the details,” a spokesperson for the Australian Competition and Consumer Commission told InnovationAus.
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