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  • Writer's pictureCrest Economics

AFT pushes ASX to a record high after Square acquisition - July 2021

The S&P/ASX 200 Index rose 1.3% to a record high this week following a strong performance from Afterpay. Afterpay shares closed 18.8% higher at $114.80 after agreeing $39b takeover deal by US payments giant Square. The index increase was buoyed by a 4.7% climb by Oil Search with Santas adding 0.6% after the pair finalised a $21bn merger. However, these gains were offstted by losses from the mining sector with Mineral Resources falling 4.4% to $60.27 whilst Fortescue Metals Group dropped 2.1% to $24.39 and Rio Tinto declined 0.1% to $133.23.

Afterpay’s merger and acquisition deal aims to boost Afterpay’s growth within the U.S market as well expansion into international markets and allow Afterpay to acquire the growth required to take on the giants of the global payments industry, with competition such as PayPal and Apple. The deal will assist integrate the consumer and merchant facets of Square’s business and drive greater retail sales through the attractive buy now, pay later model. Co-founders, Molnar and Eisen, will join Square when the deal completes in January 2022 with Afterpay’s brand continuing within the payment ecosystem within Square. At a valuation of $39bn, this would become the largest merger and acquisition deal in Australian history, and will provide Afterpay with a stronger edge in securing retailers against much larger competitors that have also copied the popular pay-in-four instalment option that transformed the consumer credit system.

The announcement of the deal coincides with Afterpay’s trading update, recording a 90% increase in underlying sales to $21bn with sales in North America rising by 148% compared to last financial year. Afterplay active customers jumped 63%to 16.2 million, with 10.5 million of them in the US, which was up 88%. Active merchants rose by 77% to 98,200 since the past year. Afterpay shares opened 27% higher on Monday morning to $124.22 before closing at $114.80, resulting in a gain of 18.77%.

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