With mergers and acquisitions booming on cheap money and a sector (the buy now, pay later sector) ripe for consolidation as big players such as Apple and PayPal enter the market, it shouldn't come as a big surprise that we've seen the first domino fall as APT this morning announced that it had signed a binding scheme implementation agreement with US payments giant Square.
Perhaps the big surprise is that the premium being offered is a relatively paltry (at least compared to other fast-growing tech takeovers) 30.6%; the stock traded above the headline $126.21 offer as recently as late June. Not only that, but APT has accepted a share-based offer which will leave APT shareholders as 18.5% owners of the combined entity only. While APT looks a good fit for Square as it will roll the product out into its payments ecosystem and provide a strong competitor to Apple and PayPal (and Klarna, the current market leader), it’s hard to see the acquisition moving the needle significantly on Square’s current trajectory so it may be a tough sell to convince APT shareholders. At first glance, it smells a bit like the APT board and major shareholders feel the stock is fully priced and that the threats to its future growth are considerable.
On any metric, APT trades on an extremely rich multiple (on a profit and revenue basis), so this looks more a strategic move for Square than one borne of opportunism, and given APT’s size and high revenue multiple at first glance it seems unlikely Square is going to face competition for the acquisition. Apple and PayPal have already demonstrated that they will organically enter the BNPL industry, and smaller players such as Zip (Z1P) and Sezzle (SZL) couldn’t afford the hefty price tag. Perhaps the only opportunity for a bidding war could come from one of the big players such as Apple and PayPal changing course and trying to limit the prospects for the other giants. APT and Klarna stand out as the big prizes on offer that bring immediate scale and competitive advantage, and arguably letting Square run away with the second biggest player in the market could be a catalyst for a defensive move by one of the giants.
Sadly for the Event Portfolio, we will have to watch from the sidelines as the offer is share-based (and in US dollars to boot), and the downside is, therefore, impossible to determine. An option for those with CFD accounts could be to short-sell the equivalent amount of Square stock – the offer is for 0.375 Square class A common shares – and there would be a decent arbitrage on offer with the current price of $119.10 a 5.96% discount to the headline value of the offer. Still, there is risk in this strategy if other bidders emerge and Square stock rallies and additionally, the deal looks like it will only complete early next year. Still, the hope is that a cash bid emerges, and we will get the opportunity to buy the stock then as a formal recommendation.
