In Monday’s Insider, I said I’d come back to you with more on the Square Inc [NYSE:SQ] takeover of Afterpay Ltd [ASX:APT].

Given I’ve written about the company (APT) on less than glowing terms here before, I thought I probably wasn’t the best person to give you a rundown on it.

So I called on our resident young gun Lachlann Tierney, co-editor of our Exponential Stock Investor service, to make sense of it all.

That’s because this is a classic ‘exponential’ transaction. That is one that makes no sense to me, but does to seemingly everyone else following the story.

The day after the shock announcement, the business media was saturated with glowing reviews about the deal and how it made ‘absolute sense’. This is an interesting take because no one really contemplated the deal the day before.

Nearly everything, however, makes sense in hindsight. And it is no different in this case. As Lachy and I discuss, the tie-up between the two companies will provide a scale that will benefit both businesses.

Square Inc is one of these new fintech companies that provide simple banking/payment/transaction services that appeal to an emerging demographic that have rejected the traditional banking model.

As Lachy points out, its market capitalisation is now approaching the size of some of the largest banks in the US. And Square is much larger than all the Big Four banks except the Commonwealth Bank. But it generates a fraction of the earnings, I would add.

And here lies the problem, as far as this ‘old paradigm’ thinker is concerned.

Square Inc, which trades on an FY22 price-to-earnings (P/E) multiple of 309 times, just bought a company trading on a P/E of 428 times.

Or, if you want to be generous and factor in another year of earnings growth, you’re looking at a respective P/E of 182 and 166 times.

Such a deal looks very much like ‘new paradigm’ thinking to me.

It used to be that high-growth companies would trade on P/Es of around 50 times. THAT was expensive. But triple-digit? What am I missing that the market sees?

Well, this is where it is useful to listen to someone like Lachy. As he points out, there is huge GLOBAL growth possible here, as a new demographic, familiar with app-based technology, move into the banking system.

They’re not taking out mortgages yet. But when they do, perhaps Square will provide that service too?