American Express announced earlier this week that it has entered into an agreement to acquire a majority of Kabbage, a Fintech platform that provides lending and cash management solutions to small businesses in the US. This transaction is another important in American Express’s mission to deepen its relationships and services for this sector, which accounts for roughly 95% of businesses in the US.
The full terms of the deal have not been disclosed, but reports from Bloomberg earlier this month put the value of the acquisition at roughly $850 million. According to Crunchbase, Kabbage has raised $2.5 billion in a mix of equity and debt and is valued at over $1.2 billion during its last raise of $250 million in 2017, led by SoftBank.
Kabbage had been in search of a buyer as the company saw its cost of capital increase, and faced more significant levels of scrutiny from regulators. Now it appears it has found a buyer, the latest in a string of large, established institutions deepening their work in fintech. Based on its sheer size, American Express brings the scale and customer base to make the Kabbage model work.
Per the terms of the agreement, American Express will acquire Kabbage’s team and its full suite of financial technology products, data platform, and IP built for small businesses. Kabbage’s products include access to flexible lines of credit, online bill payment, cash flow visualization tools, e-gift certificates, and the ability to centralize funds through the company’s new business checking account, which launched this past June. The full product suite is centralized in a single platform that helps small businesses understand, forecast, and manage their cash flow.
With the addition of Kabbage’s technology, products, and people, American Express plans to offer a broader set of tools and working capital products to its millions of small business customers in the US. It is unclear how American Express plans to integrate Kabbage; whether or not it will remain a separate brand, i.e. Kabbage by American Express or if it will be incorporated into American Express Open, the company’s suite of services for small businesses.
“For several years, American Express has been expanding beyond our industry-leading commercial card products to offer our business customers a growing set of payment and working capital solutions,” says Anna Marrs, President of Global Commercial Services at American Express. “This acquisition accelerates our plans to offer US small businesses an easy and efficient way to manage their payments and cash flow digitally in one place, which is more critical than ever in today’s environment. By bringing together Kabbage’s innovative technology and talented team with our broad distribution capabilities and over 60 years of experience backing small businesses, we can better help our customers successfully emerge from this challenging period and beyond.”
“At Kabbage, we have always made the success of America’s small businesses our primary objective,” says Rob Frohwein, Kabbage CEO, and Co-Founder. “We have built a technology and data platform that provides them with the kind of capabilities and insights often reserved for larger businesses. By joining American Express, we can help more small businesses succeed with a fully digital suite of financial products to help them run and grow their companies.”
The acquisition is expected to close later this year. It comes at a precarious time for small businesses and fintech alike, as both are looking for ways to navigate through the challenges posed by the global COVID-19 pandemic. Some sources say the deal does not include Kabbage’s loan portfolio, which as of last week, was valued at over $7 billion. An investment bank with the capability to securitize and distribute the outstanding obligations to the institutional market will likely purchase these assets. “Kabbage’s loans are ripe to be sold on the secondary market. There are several off-takers that will be interested. My guess is the entire portfolio will get bought by a mid-tier American bank looking to expand its loan trading operation.” says the Head of Loan Syndication at a Major Global Investment Bank who asked not to be named.
Over the last few months, we’ve seemed several large, publicly-traded companies double-down on their to deepen their offerings to small and medium-sized businesses. Last month Enova International purchased OnDeck Capital. Now, the news about Kabbage raises questions about the future other companies in the category such as BlueVine, Fundbox, and others that could be a strategic acquisition for a company looking to stay competitive.