The Afterpay Ltd (ASX: APT) share price has seen a very strong increase during August 2021.
The buy now, pay later (BNPL) business has seen a lot of volatility over the last six months. In May it saw a low of $84.50. Six months ago it was at almost $150.
But since the start of the month, Afterpay shares have risen around 34%.
What's driving the Afterpay share price?
It all kicked off after Afterpay received a takeover bid from Square Inc (NYSE: SQ) at the start of August 2021.
The buy now, pay later business announced that it had entered into a scheme implementation deed where Square will acquire all of Afterpay's shares.
At the time of the announcement Afterpay said that the transaction had an implied value of approximately US$29 billion, or $39 billion in Australian dollars based on the closing Square share price.
Why did the Square share price matter? Under the terms of the deal, which the boards of directors of both companies have agreed, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square shares.
If the Square share price goes up, then Afterpay shareholders will get more value. But the opposite is true. If the Square share price goes down, then Afterpay share price could also follow.
The closing of the deal is expected in the first quarter of the 2022 calendar year.
What is the point of the deal?
The deal aims to enable the companies to better deliver "compelling" financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.
Jack Dorsey, the co-founder and CEO of Square, said:
Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles. Together, we can better connect our cash app and seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.
Afterpay's co-founders and co-CEOs will join Square after the transaction is completed and help lead Afterpay's respective merchant and consumer businesses.
Afterpay share price snapshot
Whilst Afterpay shares have risen 1.3% since 3 August 2021, it has actually drifted lower by 3.6% since 10 August 2021.
