Square jumps 12% after it agrees to $29 billion acquisition of buy now, pay later firm Afterpay

• Shares of Square jumped as much as 12% on Monday after the fintech agreed to acquire Afterpay for $29 billion.
• Afterpay is a "buy now, pay later" firm that consumers use to pay for products in installments with 0% interest.
• Square will fund the $29 billion acquisition of Afterpay with all stock.
• Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Square jumped as much as 12% on Monday after it agreed to acquire Australian-based Afterpay for $29 billion in an all-stock deal.

The deal will enable Square to add the "buy now, pay later" payment option to its Cash app payments platform, directly competing with companies like Affirm. The "buy now, pay later" payment option has been on the rise in recent years, as it allows consumers to more flexibly pay for pricey items with 0% interest and no hard credit checks.

Afterpay shareholders will receive 0.375 shares of Square for each ordinary share of Afterpay, representing a 31% premium to the company's closing price on Friday. Square plans to integrate the payment option platform into both its Cash App and Seller platform, allowing businesses of all sizes to easily enable the buying option for their suite of products.

"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," Square CEO Jack Dorsey said.

Square believes the deal will be accretive to gross profit growth with a decrease in adjusted EBITDA margins in the first year after the merger. Afterpay serves more than 16 million consumers and nearly 100,000 merchants globally.

After the deal closes, Afterpay shareholders are expected to own about 18.5% of the combined company on a fully diluted basis.

Square isn't the only fintech company with its eyes on the growing "buy now, pay later" market. Following the success of Affirm, PayPal built its own BNPL payment option, and Apple is developing the payment option with Goldman Sachs, according to a Bloomberg report.

The deal is expected to close in the first quarter of 2022.