TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

Last week Square acquired Afterpay for $29B in an all stock deal. Square said the deal would be accretive to gross profit growth in year one after closing, with just a “modest decrease” to adjusted EBITDA in year one. Its shares subsequently added ~$14B market cap…not too shabby.  <div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.  </div>

Last week Square acquired Afterpay for $29B in an all stock deal. Square said the deal would be accretive to gross profit growth in year one after closing, with just a “modest decrease” to adjusted EBITDA in year one. Its shares subsequently added ~$14B market cap…not too shabby.  Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.  

Square: Afterpay Acquisition a Master Class in Platform Synergies

Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> , an American financial services and digital payments company acquired Australian-based Afterpay Limited in $29 billion all-stock deal. In our view, it was a mega-deal with a huge bet on “buy now, pay later” trend and shifting to BNPL products from traditional credit cards. Square plans to use Afterpay’s services with its seller and cash app products and offers Afterpay’s BNPL products to small businesses and consumers in the United States, that process credit card transactions on Square. Square’s cash app has 70M+ consumers, primarily in the U.S. targeting Millennials and Zoomers.

Square Inc (SQ US) , an American financial services and digital payments company acquired Australian-based Afterpay Limited in $29 billion all-stock deal. In our view, it was a mega-deal with a huge bet on “buy now, pay later” trend and shifting to BNPL products from traditional credit cards. Square plans to use Afterpay’s services with its seller and cash app products and offers Afterpay’s BNPL products to small businesses and consumers in the United States, that process credit card transactions on Square. Square’s cash app has 70M+ consumers, primarily in the U.S. targeting Millennials and Zoomers.

Shopify May Acquire Affirm Following The Mega-Deal Between Square and Afterpay

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/finaccel-pte-ltd" target="_blank" data-smartkarma-citation="entities:33791:1" rel="noopener">FinAccel (1411023D SP)</a>, the parent of Kredivo, is the leading buy now, pay later (BNPL) platform in Indonesia with an e-commerce BPNL market share of around 40%-45%. Kredivo intends to go public in the US through a SPAC merger with VPC Impact Acquisition Holdings II.The combined company will have an EV of $2.0 billion and an equity value of $2.5 billion at closing. The deal implies 6.3x 2022 EV/Sales based on Kredivo’s forecasted revenue. The transaction involves a 100% rollover by existing Kredivo shareholders, a $120 million fully committed PIPE (led by Marshall Wace, Corbin Capital, SV Investment, <a href="https://www.smartkarma.com/entities/palantir-technologies-inc" target="_blank" data-smartkarma-citation="entities:27728:1" rel="noopener">Palantir Technologies Inc (PLTR US)</a>, Maso Capital, and sponsor Victory Park Capital) in addition to a $55 million convertible note funded by existing investors <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and Square Peg. Kredivo is expected to receive over $430 million of gross proceeds. Existing shareholders will have an 83% ownership of the combined company including the concurrent investment. The BNPL market is rapidly becoming a must-have product for payment providers. This necessity has spurred the launch of in-house solutions from global payment providers such as <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a> as well the M&amp;A as evidenced by <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a>'s bid for <a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a>.  <div class="content-highlight">Since its launch in 2016, Kredivo has established itself as a leading BNPL player in Indonesia due to sustainable competitive advantages built around an in-house credit bureau and low customer acquisition costs. Kredivo is not resting on its laurels but increasing its addressable market through international expansion in adjacent countries and the launch of a new business line (Lime). Kredivo is using its market-leading position to deliver high growth with a declining loss margin. Refreshingly the YTD performance suggests that management are well on track to meet their forecasts. Finally, the proposed valuation is also attractive in comparison to global BNPL peers. </div>

FinAccel (1411023D SP), the parent of Kredivo, is the leading buy now, pay later (BNPL) platform in Indonesia with an e-commerce BPNL market share of around 40%-45%. Kredivo intends to go public in the US through a SPAC merger with VPC Impact Acquisition Holdings II.The combined company will have an EV of $2.0 billion and an equity value of $2.5 billion at closing. The deal implies 6.3x 2022 EV/Sales based on Kredivo’s forecasted revenue. The transaction involves a 100% rollover by existing Kredivo shareholders, a $120 million fully committed PIPE (led by Marshall Wace, Corbin Capital, SV Investment, Palantir Technologies Inc (PLTR US), Maso Capital, and sponsor Victory Park Capital) in addition to a $55 million convertible note funded by existing investors Naver Corp (035420 KS) and Square Peg. Kredivo is expected to receive over $430 million of gross proceeds. Existing shareholders will have an 83% ownership of the combined company including the concurrent investment. The BNPL market is rapidly becoming a must-have product for payment providers. This necessity has spurred the launch of in-house solutions from global payment providers such as Paypal Holdings (PYPL US) as well the M&amp;A as evidenced by Square Inc (SQ US)'s bid for Afterpay Touch (APT AU).  Since its launch in 2016, Kredivo has established itself as a leading BNPL player in Indonesia due to sustainable competitive advantages built around an in-house credit bureau and low customer acquisition costs. Kredivo is not resting on its laurels but increasing its addressable market through international expansion in adjacent countries and the launch of a new business line (Lime). Kredivo is using its market-leading position to deliver high growth with a declining loss margin. Refreshingly the YTD performance suggests that management are well on track to meet their forecasts. Finally, the proposed valuation is also attractive in comparison to global BNPL peers. 

FinAccel/Kredivo SPAC Deal: Smooth Shopping

Event-Driven

<a href="https://www.smartkarma.com/entities/afterpay-limited" target="_blank" data-smartkarma-citation="entities:26940:1" rel="noopener">Afterpay Touch (APT AU)</a> is a leading buy now, pay later (BNPL) player. Afterpay revealed that <a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> had agreed to acquire it through a recommended scheme of arrangement. Square will offer a fixed exchange ratio of 0.375 Square shares per Afterpay share. Based on Square's closing price on 30 July, the implied transaction price of A$126.21 per share is a 30.6% premium to the share price of A$96.66 per share on the last trading date (30 July). The deal has an implied value of A$39 billion and if completed, would be the largest in Australian M&amp;A history. The completion conditions include Afterpay and Square shareholder approval along with regulatory approval. Square intends to also establish a secondary listing on ASX. Afterpay shareholders will own 18.5% of the combined company on a fully diluted basis.<div class="content-highlight">While the share price has traded recently above the implied offer price, we think that offer is attractive in comparison to historical EV/Sales multiples and average share prices. With BNPL competition steadily increasing, the all-scrip deal gives shareholders the opportunity to benefit from the ability of the combined Square + Afterpay to expand the customer base and strengthen the product portfolio. At Square's current price of US$274.93 at the time of writing (+11% on Friday close), Afterpay shares are trading at a 22% gross spread to the indicative offer.</div>

Afterpay Touch (APT AU) is a leading buy now, pay later (BNPL) player. Afterpay revealed that Square Inc (SQ US) had agreed to acquire it through a recommended scheme of arrangement. Square will offer a fixed exchange ratio of 0.375 Square shares per Afterpay share. Based on Square's closing price on 30 July, the implied transaction price of A$126.21 per share is a 30.6% premium to the share price of A$96.66 per share on the last trading date (30 July). The deal has an implied value of A$39 billion and if completed, would be the largest in Australian M&amp;A history. The completion conditions include Afterpay and Square shareholder approval along with regulatory approval. Square intends to also establish a secondary listing on ASX. Afterpay shareholders will own 18.5% of the combined company on a fully diluted basis.While the share price has traded recently above the implied offer price, we think that offer is attractive in comparison to historical EV/Sales multiples and average share prices. With BNPL competition steadily increasing, the all-scrip deal gives shareholders the opportunity to benefit from the ability of the combined Square + Afterpay to expand the customer base and strengthen the product portfolio. At Square's current price of US$274.93 at the time of writing (+11% on Friday close), Afterpay shares are trading at a 22% gross spread to the indicative offer.

Square Lobs a Market-Defining Bid for Afterpay

Alpha-Centric ESG Research

Kyle Rudden

On 23 July, <a href="https://www.smartkarma.com/profiles/jason-yap-cfa" target="_blank" data-smartkarma-citation="accounts:24996" rel="noopener">Jason Yap</a> publised an excellent Insight titled <a href="https://www.smartkarma.com/insights/bnpl-industry-through-an-esg-lens" target="_blank" data-smartkarma-citation="insights:54887" rel="noopener">BNPL Industry Through an ESG Lens</a>. His knowledge of the "Buy Now, Pay Later" (BNPL) industry per se is well beyond mine, so I defer to his report for fundamentals on the industry and its companies.I do, however, have a few thoughts to add regarding ESG. Whilst Jason is spot-on for ESG issues he covered, I want to: 1) point out a potential ESG positive related to inclusive finance and sustainable development, and 2) expand on a major ESG negative associated with advertising and marketing.This is a deep dive into a few specific ESG issues, and hopefully complementary to Jason's work.

On 23 July, Jason Yap publised an excellent Insight titled BNPL Industry Through an ESG Lens. His knowledge of the "Buy Now, Pay Later" (BNPL) industry per se is well beyond mine, so I defer to his report for fundamentals on the industry and its companies.I do, however, have a few thoughts to add regarding ESG. Whilst Jason is spot-on for ESG issues he covered, I want to: 1) point out a potential ESG positive related to inclusive finance and sustainable development, and 2) expand on a major ESG negative associated with advertising and marketing.This is a deep dive into a few specific ESG issues, and hopefully complementary to Jason's work.

ESG and BNPL: Whether It's "Buy Now, Pay Later" Or "Buy, Not Pay Later" Makes All the Difference

United States

Affirm Holdings, Inc. is a financial technology company. The Company builds platform for digital and mobile-first commerce. Affirm Holdings offers financial services tool that allows consumers to purchase goods and services. Affirm Holdings serves customers worldwide.

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Affirm Holdings (AFRM US)

Square: Afterpay Acquisition a Master Class in Platform Synergies

Last week Square acquired Afterpay for $29B in an all stock deal. Its shares subsequently added ~$14B market cap…not too shabby.

Aaron Gabin

Shopify May Acquire Affirm Following The Mega-Deal Between Square and Afterpay

As BNPL industry is heating up after Square’s bet on Afterpay, we think fintech decacorn Affirm Holdings is the next acquisition target

Andrei Zakharov

FinAccel/Kredivo SPAC Deal: Smooth Shopping

Kredivo is using its market-leading BNPL position to deliver high growth with a declining loss margin. Refreshingly the forecasts are reasonable...

Arun George

Square Lobs a Market-Defining Bid for Afterpay

Afterpay revealed that Square had agreed to acquire it through a recommended scheme of arrangement. We think that the all-scrip offer is attractive...

Arun George

ESG and BNPL: Whether It's "Buy Now, Pay Later" Or "Buy, Not Pay Later" Makes All the Difference

This delves into a few specific ESG issues highly material to BNPL companies. It is intended as a complement to Jason Yaps excellent comprehensive...

Kyle Rudden

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