In the eye of the deal

It’s been a wild couple of years for Telstra director Elana Rubin AM FAICDLife. The former chair of Afterpay shares her experience of being at the centre of the largest merger deal in Australian corporate history.

It was one of the most intense periods of Elana Rubin’s corporate career — and also the most thrilling. As chair of BNPL (buy-now-pay-later) juggernaut Afterpay, founded by millennials Anthony Eisen and Nick Molnar, Rubin was at the centre of months of intense private negotiations in 2021, which ended in the $39b acquisition of the Australian trailblazer firm by US digital payments giant Square — now renamed Block — founded by former Twitter CEO Jack Dorsey. This all-stock deal was the largest merger in Australian corporate history. Block would subsequently take a substantial hit in the market.

Rubin had joined the Afterpay board in 2017, when it merged with Touchcorp, whose board she had been on since it listed in 2015. Touchcorp provided the technology platform for Afterpay. After Touchcorp’s CEO died suddenly in November 2015, the board undertook a strategic review of the business and commenced discussions with Afterpay about merging the two companies. Rubin became chair in 2020. A year later, Square executives held their first discussions with Afterpay co- founder Nick Molnar in Hawaii for the deal that became known internally as “Project Pocket”.

As the COVID-19 pandemic was in full swing globally, all the negotiations were done virtually. “We had an adviser based in the US, we had advisers in Sydney, one of our advisers was across the Tasman, our staff were working remotely and our directors were in all different locations,” says Rubin. “We also had an adviser to the board separate to the transaction. So we had a wide range of players and were spread across the world.”

She says the internal Afterpay team working on the deal were utterly forensic in tracking the issues, “documenting and listing literally everything”. Rubin herself chaired a board subcommittee for the deal that met at least twice a week.

“That gave us a degree of confidence we had our arms around the transaction,” she says. “We spent a lot of time not just around the financials, but around the strategic rationale, because we’d all been involved in things that looked sensible on paper, but the opportunities never really came through because there was a lack of clarity about the strategic alignment. Where the culture wasn’t right, the purpose between the two groups was different.”          

Afterpay and Square are both disruptors, providing their customers with financial freedom and giving them alternatives to traditional banking products. What their merger deal was really about was bringing AfterPay’s merchant relationships into Square’s seller ecosystem and converting AfterPay’s existing customer base into Square app users.

When it was eventually struck in August 2021, the deal valued Afterpay at 42 times its annual revenues and made it core to Square’s payments ecosystem, which includes a consumer app used by 70 million Americans, and payments hardware and software used by more than one million US merchants.

Rubin, awarded an AICD Life Fellowship in March, never doubted it was the right strategic move for Afterpay. However, she still held her breath when the deal was publicly announced to the Australian Stock Exchange on the morning of 2 August, last year.           

“Afterpay was a company everybody had an opinion on,” says Rubin. “So there is an element that while you believe the deal is the right thing and you have tested it thoroughly, you still just hope that when it sees the light of day, other people will share that and you can be confident about it. But there’s always just that little bit of baited breath as you see people’s reactions. What was interesting is once the transaction was announced and we went out and spoke to shareholders and merchant partners, they all got the strategic piece. That was really pleasing, in that having tested ourselves and really worked through the issues, when we were able to explain it and put it forward publicly, everybody said, ‘Yep’.”

M&A frenzy

The deal was the biggest of a total of US$256b in merger and acquisition transactions announced in Australia during 2021, far and away the highest annual value on record, amid an explosion of corporate activity after the abrupt lull brought by the pandemic.

The frenzy has continued in 2022, as the spectre of interest rate rises has failed to offset other powerful factors driving M&A activity, including board confidence and cash looking for a home. In the wake of the pandemic, investment bankers believe there are almost unlimited pools of capital chasing a finite set of opportunities. Boards are now looking for growth opportunities in a world increasingly challenged by geopolitical complexities and economic difficulties.

Elana Rubin says having the right process for any M&A transaction is vitally important at the outset for its success. “That may differ by transaction, but having a very clear process and the right team is really important. Having the time available to explore the ideas, test the assumptions and work through all the issues is really important,” she says, noting the Afterpay board met at least twice a week once the initial discussions started with Square. “Being clear, not only around the financial story, but the strategic rationale for the transaction, and being as confident as you can that you’re able to deliver the opportunity of bringing together two organisations, are also really important.”

Afterpay ensured it had a number of different points of contact and work streams             with Square during the negotiations. “So it was very much a collective effort to reach the positions that we took,” says Rubin. “Then it was a matter of having the best person or group to convey those during the negotiation.”

Remarkably, for such a massive deal in financial terms, it didn’t leak. Rubin made her position on the issue of confidentiality loud and clear to the company’s advisers from the outset.

“In an industry that is rife with leaks, it was really important to us, our shareholders, our employees and our stakeholders that we managed the process,” she says. “This meant that we could manage and work through the issues without leaks.”

The timing of the decision to recommend the Square deal by the Afterpay board — and more recently, its shareholders — now looks to have been ideal. While initially seeing its share price surge after the Afterpay deal was announced, it has subsequently fallen heavily (more than 40 per cent) in the sharemarket rout that has decimated technology stocks during the latter part of 2021 and through 2022. Afterpay’s losses were a drag on Block’s (the name changed in December 2021) recent half-yearly results, a dilutive factor common for many M&A deals.

However, Rubin says the strategic rationale for the transaction remains. “I don’t think we predicted what would happen in the rotation from risk to defensive assets,” she says. “So I don’t think we had that timing in our heads.

Career pathway

Rubin’s parents were both immigrants from Eastern Europe. Her father worked on the wharves in Melbourne until the early 1970s, when he set up an accommodation business.

After completing a degree in industrial relations and labour economics at Melbourne University, Rubin joined the Australian Council of Trade Unions in 1985, where then secretary Bill Kelty AC persuaded her to do postgraduate studies in applied finance and investment instead of labour law. It opened a pathway in the early 1990s to the burgeoning superannuation sector, now worth more than $3 trillion.

In 1997, Rubin joined Australian Retirement Fund, a forerunner to AustralianSuper, as chief investment officer. There, while working in her executive role, she also took on her first chair role in 2001, when she became chair of WorkSafe Victoria — then known as WorkCover.

It would be the start of her non-executive career, which blossomed in subsequent years as she became chair of AustralianSuper then non-executive director of life insurer TAL and property company Mirvac. She also sat on the advisory board of Infrastructure Australia. More recently, she has become a director of telco giant Telstra and law firm Slater and Gordon.

During 2010–16, she sat on the board of SecondBite, a charitable organisation that works with a range of food suppliers to rescue surplus fresh produce from suppliers and redistribute it to local charities and NFPs around Australia. Interestingly, given her union background, the charity was chaired by former Liberal Party state president Ian Carson AM FAICD.

“If you believe in diversity of thought — that no-one has a monopoly on good ideas, that we all share an objective of building stronger communities and a community that is safe and inclusive and provides a sense of security for all its participants — then I think we get the best outcomes by working across different groups,” says Rubin. “What Ian and [Ian’s wife] Simone Carson did in creating SecondBite was just remarkable. It just goes to show that political labels often don’t give any value to the good work that people do. I would say political labels can be a distraction.”        

The road ahead

Rubin is optimistic the new federal Labor government will deliver real progress on key issues such as climate change, First Nations recognition, gender equity and promoting the digital economy. She believes the recent election and the success of many female independent candidates highlighted the powerful role women can play in the political process and reinforced that women belong at every table where decisions are made.

“No political party should take women for granted again,” says Rubin. “The increase in the number of women in parliament will change not only the political debate, but also the culture of parliament as a workplace.”

In the post-COVID-19 world, she says the priority for her companies has been focusing on employee wellbeing. The changing way of work and the rise of the work-from-home phenomenon has increased workplace flexibility, especially for women, but Rubin stresses there is still a very positive incentive to bring people back to the office for some time each week. “We’ve seen over the past couple of years the importance of technology and being digitally connected,” she says. “The whole discussion around digitalisation in organisations has been accelerated and the role of technology in digital platforms, how we use them and how they’ve developed in parallel. So there is now some forward thinking about the skills we will need for the future. How do we access those and help develop our staff to take advantage of those opportunities?”

Rubin sees ESG as at the centre of corporate strategy, driving shareholder value, rather than simply being part of a company’s regulations and compliance obligations. “Minimising your environmental impact and environmental resources is a core part of what companies should be doing,” she says. “We focus a lot on the environmental aspects, and rightly so, but there are some really important initiatives under the S and the G.”

Rubin rejects any suggestions that women on boards might care about the environment any more or less than their male colleagues. “But women bring a different perspective, based on their experience, career path, lives and education,” she says. “We bring a different perspective to board discussions. Without diversity, the risk is we have groupthink and all we do is reinforce each other’s views based on past experience. Diversity is really important to enable some of the more contemporary issues to be fully debated.”

Rubin says boardroom discussions have become more powerful with two or three women present in the room. Gender suddenly becomes irrelevant and women account for more than 35 per cent of directors on ASX 200 boards. “Women are not all the same. We actually have differences among ourselves and so the issues stop being female issues or gender issues and become broader business, commercial issues. It is also my experience that having a number of females around the board table has given a licence to some men to say things and act a little bit differently than they may have if it was just a male group. Because sometimes, for some men, this groupthink has meant that they have been stereotyped into a position — an economic rationalist, not interested in soft issues, whatever it may be. When there’s a diversity of thought and people around the board table, everybody has got the licence to say what they think.”

Women at the top

More women have risen in recent years to sitting at the head of some the nation’s top boardroom tables. They include Catherine Livingstone AO FAICD at Commonwealth Bank of Australia, Catherine Brenner FAICD and Debra Hazelton GAICD at AMP, Kathryn Fagg AO GAICD at CSIRO, Anne Templeman-Jones FAICD at Blackmores, Ilana Atlas AO MAICD at Coca-Cola Amatil, Kathleen Conlon FAICD at Lynas, Diane Smith-Gander AO FAICD at Zip, and Elizabeth Bryan AM FAICD at IAG.

However, Rubin worries that too many women have stepped up to take the role during difficult times for their companies. “My view is: full credit to them for stepping up and having the courage and conviction to lead a board and an organisation to rectify the issues,” she says. “But more often than not, it appears it’s much harder to get a chair role when you’re a female director of a company that’s going swimmingly well.”

She also believes that where a man fails in a chair role, it doesn’t condemn his gender. The same cannot be guaranteed when a female is accused of failure. “We can have men who are perceived as not being very good in their roles, but it doesn’t condemn the entire gender,” says Rubin. “I’ve had comments made to me about speaking to a particular woman, because there were concerns about her performance and that it was going to be bad for all women. Wouldn’t it be a tragedy for the nation if we, in a sense, scared women off from taking big roles? Women who are absolutely able to do it with capable, skilled experience? But the level of commentary is so gendered they are actually put off?”

Rubin has long been on the board of Teach for Australia, an organisation committed to achieving equity in education, highlighting her passion for learning. She believes directors must always be curious and willing to embrace environments of learning. “One of the great privileges and benefits about being a director is that if you are naturally curious and you have a love for reform and a desire that things are always better, you want to build a better world going forward,” she says. “There is a sense of continuous learning and education, both formally and informally. What the AICD does is bring together a community of directors, and — particularly over the past few years — enable different voices to be heard and different views exchanged. That is part of the process of learning. You should never stop.”

Lessons learned

Rubin says she has learned something significant in all of her board roles. “It’s not about getting on trophy boards. It is about finding organisations that have a purpose that speaks to me.

“When I think back on my different roles, I can find a purpose and talk to that purpose in all of my organisations. It may not be the purpose that speaks to everyone, but it’s been the purpose that has spoken to me and that has given me an incredible sense of learning and satisfaction by being involved.

“I’d say to anyone starting out and looking at a non-executive director career, it’s not a chessboard where you go from small to large. If you do that, you might actually miss some of the most inspiring and fulfilling roles. It’s about finding those roles where you can make a difference and your organisation can make a difference.”

Rubin has always split her directorships between the listed public, private and government sectors. She notes that her engagement with the latter has long highlighted her belief in the benefit of exchanging skills and information between the public and private sectors.

“There is a transparency and timeliness around listed boards,” says Rubin.

“For some government boards, that immediacy is something they are not exposed to as much. It is incredibly stimulating. There’s a complexity that is often underestimated by outsiders. But if you think about WorkSafe, the complexity in the stakeholder relationships and the multiple touchpoints, it’s a very complex organisation. The private sector sometimes underestimates the complexity and how much the community depends on and engages with these government organisations. There’s a very real accountability that those organisations feel every day.”