The Afterpay Ltd (ASX: APT) share price will be on watch on Monday after it announced its expansion into mainland Europe.
What did Afterpay announce?
This morning Afterpay announced that its wholly owned subsidiary, Clearpay, has entered into a share purchase agreement with NBQ Corporate to acquire 100% of the shares outstanding in Pagantis SAU and PMT Technology SLU (collectively, Pagantis).
According to the release, the two parties have agreed a minimum consideration of 50 million euros. This comprises an upfront payment of 5 million euros in cash upon completion and a deferred consideration of 45 million euros in cash, payable 3 years post completion.
The deferred consideration can exceed 45 million euros, with any excess being payable in cash or Afterpay shares, provided the equity value of Pagantis exceeds 45 million euros three years post completion.
Completion of the acquisition is expected to occur in or before December 2020. It remains subject to Bank of Spain regulatory approval for the proposed change of control.
What is Pagantis?
Pagantis provides a range of buy now pay later and traditional credit services across Spain, France, and Italy. It also has regulatory approval to operate in Portugal. The addressable ecommerce market in these four countries exceeds 150 billion euros or $247 billion.
It has ~1,400 active merchants and ~150,000 active customers. Merchants and customers that are relevant to Clearpay’s European launch strategy will be invited to transition onto the re-configured product upon launch in the third quarter of FY 2021.
Why Europe?
Afterpay revealed that it is expediting its expansion into new markets to capitalise on strong consumer and merchant demand and to increase its global footprint. And it has identified the European Union (EU) as the next logical step for its international expansion. This is due to its large millennial population, vast fashion and beauty retail markets, and significant debit card usage.
Management estimates that the total addressable ecommerce market in the EU exceeds 300 billion euros or almost half a trillion dollars.
As rival Zip Co Ltd (ASX: Z1P) did with its U.S. expansion, the company believes acquiring its way into this new market is the best option. It feels it will both accelerate and de-risk the roll out of its Clearpay branded platform across the EU market.
It also notes that the acquisition provides a fully staffed and experienced team, an existing technology stack and intellectual property, as well as an immediate regulatory right to operate across all EU member states (subject to regulatory approval).
Management also advised that the expansion into the EU is consistent with demand from its marquee global retailers. It notes that the ability to service its retailers in all their key markets strengthens its relationships and contributes to its competitive moat.
Management commentary.
CEO And Managing Director, Anthony Eisen, commented: “Our momentum to date has given us the confidence to expedite our expansion into new global regions. Entering into such internationally relevant markets like the US and the UK and seeing our growth outpace what we experienced in our more mature Australian market, validates the appeal of our product on a global scale.”
“Acquiring Pagantis provides us with the necessary regulatory licencing, resourcing and infrastructure to expedite the launch of Afterpay into key countries in Southern Europe and beyond,” he added.
Mr Eisen concluded: “The new markets we will be entering will provide our global retailers with the opportunity to offer Afterpay in more regions and for us to provide a whole new customer base with access to our differentiated and customer centric model.”
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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