One of the first questions we got from our frantic editors on Monday morning after the news had dropped was Did you see this coming?
Fair question, and the answer is, well, yes and no but mainly no.
Hints of a strategic buyer
There were a few hints in April, though, as we were writing an epilogue which included Afterpays announcement it had plans to list in the United States.
We pinned this as an appropriate bookend for the Afterpay journey, as America becomes increasingly important.
But the rationale for a US listing didnt seem all that obvious to us. Since rival Affirm had gone public in January, there was no evidence of a Nasdaq premium that would lift their valuation and lower their cost of capital compared with the ASX.
But we were told the US was where Afterpays future lay, while there were hints that a strategic buyer might emerge sometime.
But who? Most of Afterpays competitors had launched their own BNPL offerings, with some success. PayPal was among this group.
So they had little reason to spend in the tens of billions snapping up someone they thought they could beat. As for the banks, Afterpay had got too big to acquire, and they were also busy copying Afterpays product.
In any event, we decided not to end the book by trying to predict the future. We figured we were bound to get that wrong and felt the book should document the state of play up until we downed our pens.
Finding a buyer who needed it
Enter Square, a payments juggernaut that needs Afterpays special formula to grease its ecosystem. Afterpay found the buyer that needed it and which could help Afterpay as buy now, pay later morphs into something bigger.
What doesnt surprise us is that the Afterpay duo of Anthony Eisen and Nick Molnar have once again executed masterfully.
Throughout Afterpays history they have emerged from clutch situations from business-model-busting regulation to the arrival of big scary competitors and many sharemarket gyrations.
And when theyve had the wind at their backs, theyve taken full advantage. The deal with Square, if its approved, is yet another well-executed opportunity, albeit the largest.
Afterpays management can worry a little less now about the rising competitive threat and whether their hefty valuation could withstand even small speed bumps, or what many believe is an inevitable fall in revenue received from merchants.
Easier exit for founders
The founders will also be able to tap their $2.7 billion fortunes with far greater ease than before. As directors of an ASX-listed company, share sales had to be done in large, disclosed blocks.
But now they will hold shares in Square. Theres no doubt the scrutiny of running a high-growth public company in Australia will ease.
Afterpays deal will also be welcomed by some large Australian institutions that have been haunted its rise up the index ranks, forcing them to take a position on a highly valued, as yet unprofitable company.
The buy now, pay later sector has taxed the minds of all Australian investors, splitting them into two distinct camps of lovers and haters. But theres something in this deal for the bears as well.
The implied price of $126 is far from stratospheric. Its some way off the $160 that Afterpays share price peaked at on February 10.
Its also lower than the median $145 mean share price target of analysts that cover Afterpay and represents just a 6 per cent year to date gain.
It could therefore be taken as a sign that Afterpay agrees that, as a standalone operator, it has taken the idea as far as it could.
The valuation from here is what it could bring to a strategic partner, rather than the profit it could create on its own.
In researching Afterpay, there were few other Australian companies that can claim to have exported its model so successfully. One is mall operator Westfield.
There are some parallels in that Westfield helped bring retailers and consumers together and extracted a share of economic profits along the way.
Afterpay has done similar for merchants in the digital age. After decades, Westfields founders knew when it was time to sell, amid signs of the death of the mall at the hands of e-commerce.
The circumstances with Afterpay are very different. Buy now, pay later is just getting started. But for Afterpay, in its current form, the journey also ends.
Buy Now, Pay Later: The Extraordinary Story of Afterpay, by Jonathan Shapiro and James Eyers, will be published by Allen & Unwin on August 3, $32.99rrp

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