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Australian startups Afterpay and Touchcorp will merge to create a $350 million fintech monster

Photo: IMDb

“Buy now, pay later” startup Afterpay and payments system firm Touchcorp will merge to form a new public company.

Afterpay — with a current market capitalisation of $181 million — announced to the ASX on Thursday that will take a 64% stake in the new entity which will be named NewCo.

This will exclude Touchcorp’s existing 26% ownership in Afterpay. The remaining 36% of NewCo will be owned by Touchcorp, which has a market cap of $173 million.

The companies announced the merger as a complementary pairing of Touchcorp’s payment technology products and Afterpay’s retail network.

“This proposed strategic merger would enable NewCo to be fully integrated from a technology perspective, boost the earnings potential of each component company with access to new industries and benefits of scale,” said Afterpay executive chair Anthony Eisen.

Afterpay has seen its fortunes climb since listing on the ASX in May. Its shares have gone from an issue price of $1 to $2.34 as of Thursday afternoon. The layby service, which costs nothing for consumers but takes a 4% cut from participating retailers, now boasts 450,000 unique customers.

Afterpay example. (Source: Afterpay)

Afterpay managing director Nick Molnar attributed the company’s success to its relationship building.

“We are pleased to have an opportunity to work even closer together [with Touchcorp]. Afterpay’s success over the past 12 months has been driven by building very strong retail relationships and engaging customers on a personal level.”

Just two weeks ago, Afterpay announced a blockbuster deal with Tyro, allowing physical stores that use Tyro EFTPOS machines to offer Afterpay’s layby service.

In contrast, Touchcorp stocks have had a tough year. Twelve months ago it hovered around the $2.50 mark but had sunk to $1.05 as of Wednesday afternoon. The merger announcement saw it rocket up to as high as $1.43 on Thursday.

Touchcorp chair Mike Jefferies said the brand recognition of Afterpay made the merge a “compelling offer”.

“The proposed merger would represent a unique opportunity to combine the outstanding technology set from Touchcorp with the strong sales focus and brand recognition of Afterpay to develop stronger propositions to customers and investors,” he said.

Touchcorp boasts Optus as a big-name client and also provides the tech behind 7-Eleven Australia’s fuel price lock mobile app.

The deal has until end of September to complete subject to due diligence, regulatory and shareholder approvals.

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