Since the Afterpay (ASX:APT) takeover was announced shareholders now have to ask themselves “Should I sell” or “Should I hold”?

All this week a lot has been said about the Square takeover and what it might mean for the BNPL sector as well as tech stocks generally.

But Afterpay investors wondering “Should I sell” have arguably been left wanting.

As the deal involves scrip rather than cash consideration, shareholders have the choice to stay.

Early investors may be keen to cash out their earnings while others who bought at all time highs of over $160 per share might doubt it can reach that level again.

Stockhead caught up with Mark Arnold and Jason Orthman, Chief and Deputy Chief Investment Officers (CIOs) from Hyperion Asset Management.

Afterpay is the equal highest holding in Hyperion’s growth fund with an 11.8% stake and Square (NYSE:SQ) is the fourth largest in its Global Growth Fund.


Afterpay tipped to accelerate Square’s growth

The pair were like the rest of the market surprised at the takeover but agree with it.

“In a way it was a surprise to us but in another way it makes a lot of sense and we think there are synergies as a result, it’s a perfect merger and one plus one equals three type situation,” Arnold said.

“I think there’ll be substantial benefits to both business in terms of the value proposition to the different customers.”

The deal will involve Afterpay’s functionality into Square’s products, something Arnold says is exciting and something Afterpay investors would miss out on if thye decide they should sell.

“It should really accelerate the growth Square was experiencing – they were growing at high rates but they’ll be given an extra boost to their growth and the lead generation value proposition that Afterpay has to merchants,” he said.

“That’s going to be extremely valuable because they’ll be able to get access to the millions of merchants Square has in their ecosystem so that’ll be very good for all concerned – we’re very excited about that.”

Arnold says he is not typically a fan of takeovers but in this case he is.

“[Typically] we don’t want our stocks to be taken over because think the return profile if we hold them long-term will be superior to a short-term premium you get to a takeover.

“And we’re relieved it’s a scrip offer not just a cash and we’re happy that the scrip will be listed in Australia as well and we’re going to retain it in our Australian portfolio – which is important to that.”


If I don’t sell Afterpay, what should I expect out of Square?

While Afterpay just has BNPL, Square is a bigger business with more diversified revenue streams.

Arnold thinks Square will help Afterpay grow as its users pick it up, particularly users of Square’s mobile payments platform CashApp.

“CashApp is a more recent product but it’s well entrenched, it’s got strong network effects in the CashApp because as someone starts using the CashApp for peer to peer transfers they’re going to encourage family and friends to also be on the app, so that’s going to be a strong network effect.

“We love Afterpay’s core business and there’s growth potential there but the combination of the two provides substantial synergies and diversification for shareholders.

“And so Afterpay’s shareholders will benefit in terms of the robustness of the business they end up with once the merger goes through – [a] stronger competitive advantage, stronger value proposition, higher levels of sustained growth over long periods of time and less risk as well.

“We think the risk adjusted returns go up as a result of the merger, so Australian shareholders in Afterpay we think are winners out of the deal.”


‘If you’re an Afterpay investor, you shouldn’t be nervous’

Jason Orthman weighed in, also backing the deal and noting it was a big coup for the ASX because it involves Square essentially being partially listed on the ASX.

While he admits some shareholders may feel uneasy and decide they should sell, he says Afterpay will grow as a result of Square.

“If you’re an Afterpay investor you shouldn’t be nervous, you are going from a single product company to a larger multi-product, multi-faceted business,” Orthman said.

“Square listing on the ASX should be exciting for the broader market bringing a level of quality and growth that’s unusual to the Australian market, so it’s a big thing to bring a business like that to the ASX.”


The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.