The Afterpay Ltd (ASX: APT) share price has been marching higher these past few days, finishing the week's trading 7% in the green.
That's a complete reversal to how Afterpay began its walk to start September – it had a quick slip from $133.30 to $122.20 in just two weeks, before recovering.
Let's take a closer look at what's moving the soon-to-be acquired buy now pay later (BNPL) pioneer.
What's up with the Afterpay share price since the Square deal?
Recall that US retail payments giant Square Inc (NYSE: SQ) recently agreed to purchase Afterpay in the largest transaction in ASX history – $39 billion.
It's an all-scrip consideration that will see Square exchange its own shares, at a certain rate, for each individual share in the BNPL giant.
The exchange ratio is set at 0.375, meaning Afterpay shareholders will receive 0.375 Square shares for each individual share they own.
As it stands, this implies a valuation of A$137 per Afterpay share, after recent gains in Square's share price on the US exchange.
These gains are important for the Afterpay share price – for each US$1 that Square's share price goes up in value, the Afterpay's implied valuation concurrently increases by 37.5 cents.
Square's share price has gained 25% in the last 6 months and is up a further 4% in the past 5 days. Great news for Afterpay investors.
Given this growth in the new Afterpay owner's market capitalisation – which now sits at US$122.6 billion – and factoring in this mathematical relationship, it starts to make sense as to why Afterpay shares have gained over the past week or so.
The above is spurred on by a weaker AUD versus the USD, which inherently enriches the valuation due to the exchange rate effect.
Investors appear to want a piece of the action, in the hope of nabbing Afterpay shares at a bargain as their valuation increases, in unison with Square's share price.
If that is the case, then it stands to reason that the trend will continue, as the Square share price continues to march higher. It finished Thursday's session 2% higher, at US$266.72.
Afterpay share price snapshot
The Afterpay share price has gained almost 80% in the past 12 months, with only 12% of that obtained this year to date.
In the last month, Afterpay shares are in the red. Not much had happened with Afterpay shares prior to this week, since the commotion after the Square deal was announced.
However, given the recent surge in Square's share price, the Afterpay share price is booking gains once again.
