Matrix was a key adviser to Afterpay for its US plans and the cash from the venture fund underpinned the company’s eventual foray into the lucrative market.
Afterpay earmarked another 10 per cent of the equity in the US business for employees who received lucrative options to jump ship from top tech companies to join the Aussie startup.
The latest capital raising will allow Afterpay to buy back around one-third of Matrix’s underlying interest in the US business for $373 million. Matrix’s remaining interest in the US business, plus shares it acquired in 2018 as part of the deal, are currently worth $1.08 billion based on the proposed US transaction and the current share price.
Another $225 million of Afterpay’s raising is earmarked for US employees who want to cash out their options in the US subsidiary rather than receive shares and options in the ASX listed mothership.
Afterpay says the deal will lift its share of the US subsidiary from 80 per cent to as high as 93 per cent depending on the uptake of its offer by staff.
Paying just under $600 million for up to 17 per cent of Afterpay’s US subsidiary is a bargain for the group according to chief executive Anthony Eisen. He says the deal is “highly accretive” as its values the US business at just 28 per cent of Afterpay’s current market valuation.
“From a company prospective, we think negotiating this outcome at an equivalent valuation, which looks at the US as 28 per cent of the whole is very fortuitous,” says Eisen.
It is not hard to see why. The company’s half year results showed that the US accounted for more than 8 million of its active users, more than 60 per cent of its customer base and 43 per cent of underlying sales generated on its platform. According to Bell Potter the US will account for more than 60 per cent of underlying sales by 2023.
Eisen says the growth and opportunity in the US is more substantial than they previously thought.
Australia has provided the blueprint for Afterpay’s overseas expansion and the latest results show how customers become even more valuable the longer they are on the platform.
Australian customers who have been with Afterpay for more than four years transact 29 times a year, according to its latest results. The average Australian customer uses the platform half as much.
And long term customers are much more reliable when it comes to paying their bills.
The cash raising is not particularly prohibitive for Afterpay either. Not at these frothy prices, or the terms it is offering potential investors on the transaction.
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The notes will convert to shares down the track, 2026 to be precise, at a 35 to 45 per cent premium to the current share price of $134.36, which values Afterpay at more than $38 billion.
Keep in mind that this is a company that generated revenue of $374 million for the December half year and a $79 million loss as it focuses on global expansion.
Investors in the notes will literally be paying now with the option to buy shares later at a significant premium to the current share price. Yet if the stock continues its relentless upward trajectory, it could be at a discount to the market price by then.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.
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