A takeover offer from financial services and payments giant Square Inc (NYSE: SQ) has sent the Afterpay Ltd (ASX: APT) share price 22% higher to $118 on Monday.
In good news for shareholders, it looks like the M&A activity has brought life back into the buy now, pay later sector, with gains across the board.
BNPL sector running hot on Monday
2021 has been a tough year for the BNPL sector following an onslaught of new competitors, margin pressures and headwinds for the tech sector.
Before today's surge, the Afterpay share price was down about 18.7% year to date.
Other large-cap BNPL shares such as Zip Co Ltd (ASX: Z1P) and Sezzle Inc (ASX: SZL) have largely gone nowhere since February.
While smaller players, including Openpay Group Ltd (ASX: OPY) and Splitit Payments Ltd (ASX: SPT), have tumbled more than 50% in the last 12 months.
Encouragingly, the BNPL sector is posting some strong gains on Monday following the jump in the Afterpay share price.
On the larger end of town, Zip and Sezzle shares are trading 8.73% and 3.19% higher, respectively.
If Square successfully acquires Afterpay, Zip might rise to the occasion as the top ASX-listed BNPL stock.
Smaller, beaten up BNPL shares, including Openpay, Splitit, Laybuy Holdings Ltd (ASX: LBY) and Humm Group Ltd (ASX: HUM), are also enjoying some gains, up 2.65%, 8.7%, 5.81% and 3.21%, respectively.
Why the Afterpay share price might be driving the BNPL sector higher
Square's takeover offer will see Afterpay shareholders receive a fixed 0.375 shares of Square Class A common stock for each Afterpay share they hold on the record date.
This values the Afterpay share price at approximately $126.21 based on Square's closing price of US$247.26 last Friday. Or a 30.6% premium to Afterpay's last closing price of $96.66 on Friday.
A BNPL acquisition of this scale is the first of its kind, with Square willing to front up $30 billion (in shares) to acquire a company trading at around 30 times FY21 revenue.
The broader ASX-listed BNPL sector is likely pleased to see frontrunner Afterpay potentially getting taken over at a significant premium.
