<story><title>Square to acquire Afterpay for $29B</title><url>https://squareup.com/us/en/press/square-announces-plans-to-acquire-afterpay</url></story><parent_chain><item><author>hn_throwaway_99</author><text>I&amp;#x27;ve just come to accept that I&amp;#x27;ll never understand corporate finance. Based on the data I could find, this works out to a sales price of about 76 times &lt;i&gt;revenue&lt;/i&gt; for Afterpay. Even for a fast growing company, how can they ever grow into that valuation? Of course, it&amp;#x27;s an all stock deal, so perhaps it&amp;#x27;s better to just consider what percentage of Square they&amp;#x27;re giving to Afterpay stockholders, but I still just can&amp;#x27;t wrap my head around these prices given the revenue numbers.</text></item></parent_chain><comment><author>kevindong</author><text>The acquisition is entirely in stock, so very little actual cash is changing hands.&lt;p&gt;According to the Afterpay investor relations site, Afterpay&amp;#x27;s gross revenue for FY21 (ended June 30, 2021), assuming constant currency exchanges rates, was $978 million AUD [0]. If you subtract out the first half of FY21&amp;#x27;s revenue ($385.2 million AUD) [1], we arrive at an implied revenue of $592.8 million AUD for the second half of FY21. Convert that to USD (USD$1 = AUD$1.36) and we arrive at an annualized revenue run rate of ~$871 million USD.&lt;p&gt;Which implies an acquisition price of ~33.3x gross revenue. Which is certainly a lot better than 76x ratio. Moreover, that growth rate is ~53.9% ($592.8 million &amp;#x2F; $385.2 million) over the prior half-year which is truly astounding growth.&lt;p&gt;[0]: On &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;corporate.afterpay.com&amp;#x2F;investors&amp;#x2F;asx-announcements&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;corporate.afterpay.com&amp;#x2F;investors&amp;#x2F;asx-announcements&lt;/a&gt;, go to &amp;#x27;ASX Announcements&amp;#x27;, then find the &amp;#x27;FY21 trading update&amp;#x27; dated 2 Aug 2021, $978 million is on the second data column of the second table on the first page.&lt;p&gt;[1]: On &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;corporate.afterpay.com&amp;#x2F;investors&amp;#x2F;asx-announcements&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;corporate.afterpay.com&amp;#x2F;investors&amp;#x2F;asx-announcements&lt;/a&gt;, go to &amp;#x27;ASX Announcements&amp;#x27;, then find the &amp;#x27;H1 FY21 Results Announcement&amp;#x27; dated 25 Feb 2021, $385.2 million is on the fourth data row of the first page&amp;#x27;s table.</text></comment>
<story><title>Square to acquire Afterpay for $29B</title><url>https://squareup.com/us/en/press/square-announces-plans-to-acquire-afterpay</url></story><parent_chain><item><author>hn_throwaway_99</author><text>I&amp;#x27;ve just come to accept that I&amp;#x27;ll never understand corporate finance. Based on the data I could find, this works out to a sales price of about 76 times &lt;i&gt;revenue&lt;/i&gt; for Afterpay. Even for a fast growing company, how can they ever grow into that valuation? Of course, it&amp;#x27;s an all stock deal, so perhaps it&amp;#x27;s better to just consider what percentage of Square they&amp;#x27;re giving to Afterpay stockholders, but I still just can&amp;#x27;t wrap my head around these prices given the revenue numbers.</text></item></parent_chain><comment><author>TuringNYC</author><text>Other potential reasons for high multiple:&lt;p&gt;- Acquirer sees huge growth and thus a reasonable PEG ratio&lt;p&gt;- Acquirer wants some key market they have been unable to win themselves&lt;p&gt;- Acquirer wants some key technology, patent, or engineering know-how&lt;p&gt;- Acquirer wants team that has achieved something impressive to apply to acquiring company&amp;#x27;s own product&lt;p&gt;- Acquirer wants to absorb client base with higher growth than they have internally&lt;p&gt;- Acquirer has M&amp;amp;A execs who cant get promoted without deals&lt;p&gt;- Acquirer has inflated stock, so the cost is only relative to this inflated stock while the stock remains inflated</text></comment>