- February 25, 2020
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
Intuit Acquisition of Credit Karma
Intuit the accounting, tax filing, and financial planning software giant, announced that it intends to acquire Credit Karma. The fintech startup has more than 100 million registered users, 37 million of them current monthly users, which allows people to monitor their credit scores, buy credit cards and loans, record taxes, and more. Intuit acquisition of Credit Karma for $7.1 billion, is its biggest-ever acquisition till date, and one of the largest in the section of privately-held fintech businesses.
Even in the course for more widespread consolidation in the world of financial technology — where numerous smaller venture-backed startups, as well as more balanced up and experienced fintech businesses, are getting bought by more prominent firms in an attempt for more economies of scale — Credit Karma’s sale to Intuit stands out as one of the more notable deals in terms of price.
The takeover emphasizes the significance of the financial data of regular Americans. Credit Karma developed to be deserving billions of dollars by providing people access to their credit scores and then applying the information to assist them with advertisements for new credit cards and loans. The startup stated it had more than 2,600 data points on each of its buyers, like user’s Social Security numbers and their outstanding loans.
Why sale and not an IPO
Credit Karma’s choice to sell itself to Intuit denoted to the growing skepticism that investors have been showing toward tech startups. Credit Karma presumed to proceed with an initial public offering. But numerous notable growing tech companies, such as ride-hailing companies Uber and Lyft, went public last year — and have seen their stock prices plummet after Wall Street challenged whether they could become profitable.
Unlike various startups, Credit Karma has a proven business model and steady revenue. It receives a commission of a few hundred dollars each time someone takes a new credit card or loan proposal that it promotes. The startup stated it had $1 billion in revenue last year, up 20% from 2018.
But Credit Karma’s progress has produced many copycats. Many financial firms now give customers complimentary access to their credit scores. Credit Karma has been seeking to extend its offerings and obtain access to more customer data by offering new free services like tax filings.
Intuit acquisition of Credit Karma – Valuation
Credit Karma got appraised at about $4 billion based on its latest funding round in March 2018, managed by private equity firm Silver Lake. Financial-technology venture firm Ribbit Capital also backs credit Karma. Credit Karma’s investors have stayed in for seven to 13 years, their funds are aging, they need an exit, and the IPO market isn’t desirable these times.
The purchase price will be due in even portions of cash and Intuit stock, with the equity of Intuit valued at about $299.73 per share. The transaction would be neutral to accretive to Intuit’s adjusted earnings per share in the first year after the deal closes, presumed in the second half of 2020.
Strategic Fit for Intuit
The purchase is an apparent fit for Intuit, where it will assist two goals. Intuit can draw Credit Karma’s customer base and scale of services — it partners with 100 financial service providers in its marketplace — to complement those it now attempts to upsell those users to Intuit’s premium, paid services. And Intuit can utilize it to expand its more widespread business by penetrating a set of customers — typically more modern users — that Credit Karma has probably been more victorious in winning than Intuit has.
Further, this acquisition allows Intuit to revamp its business model. Customers are shifting away from spending for apps directly and using both free software backed by ad revenue or apps with a recurrent subscription. Intuit’s model of pricing for tax and accounting software might not be sustainable. Purchasing Credit Karma could assist it in deciding a route ahead.
Intuit could move from charging a set fee for providing taxes to bundle services (e.g., Mint + Credit Karma). Then it can impose a recurrent subscription fee where overall expenses are more comfortable with taking services that could be comparatively inexpensive to free and producing incremental revenue off them because increases get obscure.
It’s as if every business was scanning for a way to turn consumers’ behavior from apparent and discrete purchases made with full information toward those that are more disguised and discreet to drive more steady sources of revenue.
Integration Strategy and Risks
Intuit proposes to retain Credit Karma— as a standalone entity, driven by CEO Kenneth Lin, who co-founded the startup with Ryan Graciano and Nichole Mustard.Intuit has a miserable track record of integrating acquisitions and producing 1+1=3 in the retail banking sector. Its previous purchase, Mint, has rarely been the disruptor as it acclaimed as back around 2008. DI got auctioned off in 2013. Intuit even divested Quicken two years after that, to concentrate on the small business market.
In 2015, Intuit traded off Dreamforce, online marketing and communication software for small businesses, which it had obtained in 2012.
If Intuit folds Credit Karma into its set of services, then it loses the astonishingly powerful Credit Karma brand. However, if it holds Credit Karma as a standalone brand, then I don’t see the advantage of acquiring it in the first place, mainly if the acquisition drains the original, disruptive, innovative elements of Credit Karma