Dorsey-led $ 29 billion deal delivers quick pay to Afterpay founders

SYDNEY, Aug. 2 (Reuters) – A tweet from Kim Kardashian promoting Afterpay (APT.AX) as a way to buy her beauty products may have been essential for the Australian pioneer buy now, pay more late, whose founders have since joined the reality TV superstar as billionaires.

Kardashian’s recommendation in 2018 helped Afterpay, which agreed to a record $ 29 billion buyout by Square (SQ.N), the payments company of Twitter founder (TWTR.N) Jack Dorsey, break into the U.S. market. .

The rapid rise in Afterpay, which peaked with Australia’s biggest deal ever and propelled its stock market to record highs, began when an eBay seller (EBAY.O) noticed that young people avoided credit cards after the 2008 financial crisis. Read more

“It all started with millennials switching to debit cards over credit cards in 2008,” Afterpay co-founder Nick Molnar said in an interview with Reuters in 2020.

Molnar, 31, sold jewelry in his bedroom while studying business at the University of Sydney, and he and Anthony Eisen, co-founder of Melbourne-based Afterpay, were neighbors.

He and Eisen, a 49-year-old former fund manager specializing in tech companies, will each pocket A $ 2.46 billion ($ 1.8 billion) from the Dorsey-led deal and remain with the company.

Australian media have widely reported that Molnar is the country’s youngest self-made billionaire. Along with Eisen, he was ranked fifth among Australian executive directors, the Australian Financial Review reported in July.

The success of Friends is based on the idea that they could offer buyers a small loan that they would pay off in installments, with the incentive that they could make more purchases if they paid back on time.

Afterpay would take a 4-6% reduction in the store price of the merchant, who would use their services to drive business.

They started the business in 2014, recruiting reputable clients such as Woolworths (WOW.AX), Myer Holdings (MYR.AX) and Wesfarmers’ (WES.AX) Officeworks.

And just three years later, it merged with its technology provider, Touchcorp, to create an all-in-one service.

From 2017, Afterpay could monitor buyers and direct them to stores, while processing loans and repayments. Due to its low loan value and attractiveness to buyers, Afterpay claims its default rates are lower than other consumer loan methods.

However, the road to riches for Molnar and Eisen has not always been easy as Afterpay has undergone regulatory review in Australia and the United States.

In 2019, Australia’s anti-money laundering agency ordered an independent audit of Afterpay, citing “concerns about its compliance” and the rapid growth of buy now, pay later. He then received the green light.

And in 2020, Afterpay paid A $ 1.5million to California regulators who said it had been operating illegally since it started doing business there before being licensed. The company has denied any illegal behavior.

PANDEMIC PAYDAY

Afterpay bagged a Tencent investment (0700.HK) in May 2020, triggering a prolonged ramp-up as investors aligned their portfolios with the Chinese online giant.

And a boom in online shopping during the COVID-19 pandemic, driven by budget stimulus checks, sealed its high valuation.

Its shares crossed the AU $ 100 mark in October and by February 2021, they had reached AU $ 160.

Although Afterpay has yet to make a net profit, it is one of Australia’s 20 largest companies, alongside financial powerhouse Macquarie (MQG.AX) and telecommunications giant Telstra (TLS. AX).

Monday’s deal blocks a market valuation that some analysts say is overvalued due to uncertainty surrounding the COVID-19 Delta variant, varying levels of government relief funding and warnings that interest rates must increase from record lows.

“This is a market-defining transaction. It really shakes things up and validates the work that Afterpay is doing,” said Emanuel Datt, founder of Datt Capital who bought shares of Afterpay for around A $ 7.00 in 2018 and predicted a buyout this year.

($ 1 = 1.3598 Australian dollar)

Reporting by Byron Kaye in Sydney, additional reporting by Nikhil Kurian Nainan in Bangalore; Editing by Sayantani Ghosh and Alexander Smith

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