So with Square Inc (NYSE: SQ) agreeing to take over Afterpay Ltd (ASX: APT) for $39 billion, that's the end of the journey for shareholders, right?
If you don't want to end up with Square shares, you simply sell your Afterpay shares. Simple.
But it's not that straight forward. It never is on the stock market.
Even if you don't wish to own Square stocks in the long run, the deal will take another 6 months to complete. And there is a compelling reason to hold onto those Afterpay shares.
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Shocked at the speed of consolidation
Ophir Asset Management co-founders Andrew Mitchell and Steven Ng said they always expected consolidation in the buy now, pay later sector — but was caught off-guard last week.
"We're a little surprised at how soon it may be happening," they wrote in a letter to clients.
"The Afterpay takeover offer just goes to show that the big payments players know they need to be exposed to the BNPL sector as it's not going away and will likely be an enduring part of the payments landscape."
They suspect this might be just the start of specialist BNPL providers being snapped up by larger financial institutions.
"We expect a lot of speed-dating between the other BNPL players and potential suitors. You can see this with the moves in a number of their share prices," they wrote.
"Increasingly investors should be viewing BNPL as just one part of a suite of products in the payments offering from a provider, rather than just a standalone."
So now Afterpay shareholders need to decide whether to back a more generalist fintech, as opposed to a 'pure play' buy now, pay later company.
"Many may have a similar attraction to Square which is also a fast-growing and passionately run fintech that is disrupting the traditional banking model."
Even if you don't want Square shares, maybe hold on
Mitchell and Ng reckon Afterpay and Square are a positive fit for each other.
"Square seems a good match with lots of synergies. Since the acquisition announcement, you can see that 1+1 = 3, with Square's share price rising significantly."
But even if you have no desire to hold Square stock, they suggest holding onto Afterpay shares, at least for a little while.
"We still own Afterpay in case a bidding war breaks out with potential suitors such as Apple Inc (NASDAQ: AAPL) or PayPal Holdings Inc (NASDAQ: PYPL)," the Ophir fund managers said.
"Further consolidation in the BNPL industry will likely follow with perhaps 2 to 3 key players left at maturity."
Mitchell and Ng said that Afterpay is a massive integration task for Square.
"Much bigger than anything that's come before. Investors should be watching closely how the technology and culture integration goes."
Square stocks have lost 3.9% over the past 5 days, closing Friday morning at US$268.59. Afterpay shares have remained flat to close Thursday at $131.54.
