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Afterpay is raising $330 million to chase the US market

- June 11, 2019 4 MIN READ

Afterpay Touch boss David Hancock received the Finnies award for FinTech Organisation of the Year last week.

  • The buy now pay later fintech startup is seeking $300 million from the sale of 13.8m new shares at a 10% discount.
  • A share placement plan with existing shareholder could raise up to $30m after that. 
  • Founders Anthony Eisen and Nicholas Molnar and Afterpay boss David Hancock are making a $100m secondary sell-down to US hedge funds
  • The company wants to scale quickly in the US to quadruple sales within three years

Afterpay Touch is raising AU$330 million in new capital in a new share placement as it pushes towards a 2022 goal of quadrupling sales to AU$20 billion gross merchandise volume (GMV).

Shares in the Melbourne-based buy now, pay later fintech were suspended on the ASX today ahead of the announcement, which will also see founders Anthony Eisen and Nicholas Molnar, plus executive director David Hancock, offloading 2.5 million shares – a combined 1.9%  stake worth $100 million – to Julian Robertson’s US hedge fund, Tiger Management, and New York-based hedge fund Woodson Capital Management. Hancock is selling 400,000 shares with the remainder split between the co-founders.

The trio committed to not selling any further shares until at least 120 days from today.

Eisen and Molnar will continue to have an 8.1% stake – 20.5 million shares – each, following the secondary sell-down and placement, and remain Afterpay’s biggest shareholders.

An ASX announcement on Tuesday said Afterpay will make a fully underwritten institutional share placement of 13.8 million new shares at a floor price of $21.75, a 10% discount on Friday’s closing price of $24.17, to accelerate its expansion in the US.

Afterpay shares have jumped 95% since the start of 2019.

“Our experience to date confirms that the US scale-up opportunity is clear, supporting an accelerated investment in the global opportunity. We believe that shareholder value will be maximised by focusing on merchant and customer growth across a mid-term three-year plan,” Afterpay’s ASX statement said.

“A strong growth strategy will be the foundation of mid-term value creation. Further to investing in this strategy, we expect operating leverage and earnings growth as we scale towards our end FY2022 target of over A$20 billion GMV and net transaction margin of c. 2%.”

Existing shareholders will be able to subscribe for up to $15,000 worth of stock through a share purchase plan (SPP) following the placement, with the business hoping to raise approximately $30 million. It’s not underwritten.

 

Rapid growth

The money will go towards “accelerated GMV growth in the US, the UK launch and continued investment in ANZ under the
mid-term plan”, as well as “investment in enterprise merchant acquisition and scaling SMB capability”.

In a statement to the ASX on Thursday, the company revealed that underlying sales were set to pass $5 billion in FY19 – and the unaudited year-on-year figures were already up 143% $4.7 billion for the first 11 months to May 31.

There were more than 4.3 million active customers and approximately 30,600 active merchants at that date.

Around 7,900 new customers were signing up daily since the beginning of 2019.

Australia and New Zealand now have a combined customer base of more than 2.7 million active customers with access to 27,300 merchants.

The business has also had a “soft test” in the UK market and trades under the Clearpay name.

The company also revealed last week that it was in discussions with the federal government’s financial crimes body, AUSTRAC, over potential money-laundering concerns.

The business has also moved into the Australian consumer healthcare sector over the last 10 months, and now offers buy now, pay later options in more than 1,100 dental and optical practices.

After a year in the US market, Afterpay now has 1.5 million active customers and more than 3,300 active merchants. US GMV was approximately $780 million (unaudited) for the 11 months to May 31.

The business says that based on annualising the May trading numbers, the US arm is generating around AU$1.7bn in annualised GMV and that figure has been achieved in 13 months, but took three years in Australia.

 

ASX query

Following last week’s announcements, the ASX’s Principal Adviser, Listings Compliance, Dean Litis, wrote to the company over concerns that the US announcements could have a material effect on the share price, which jumped last week, and whether they were substantially different to numbers released in ASX announcements in January and February this year.

On Wednesday, the share price rose more than 7% after the business announcement distribution deals with US retailers such as Levi’s, Ray-Ban, Jeffree Star Cosmetics and O’Neill.

Afterpay’s General Counsel and Company Secretary Christopher Stevens responded late on Friday with a firm “no” saying the growth was in line with previous numbers in the fast-growing business.

“A figure of 1.5 million US customers is not materially different from this extrapolation and would be well within market expectations given previous announcements regarding accelerating growth rates,” he wrote.

The three-page response from Stevens says “there could have been a range of other factors and alternative explanations for the increase in APT’s share price”, including the RBA’s interest rate cut “leading to an expectation in the market of improved consumer confidence which traditionally benefits retailers and businesses like Afterpay”. He added that the company’s stock is “volatile” and the movement was smaller than the previous week.

Stevens rejected any implication that Afterpay did not comply with its Continuous Disclosure Policy, which was “operating in an effective and efficient manner”.

Trading in Afterpay shares is expected to resume on Wednesday.