INSUBCONTINENT EXCLUSIVE:
The week is kicking off with a major piece of M-A in the world of financial technology startups
Today Intuit — the accounting, tax filing and financial planning software giant behind QuickBooks, TurboTax and Mint, confirmed that it
plans to acquire Credit Karma — the fintech startup with more than 100 million registered users, 37 million of them active monthly users,
which lets people check their credit scores, shop for credit cards and loans, file taxes and more
Intuit said it would pay $7.1 billion for Credit Karma, making this Intuit biggest-ever acquisition to date, and one of the biggest in the
category of privately-held fintech companies.
The news confirms a report from the WSJ that surfaced over the weekend noting that Intuit was
finalising a deal to buy the startup for $7 billion in a cash and share offer, in the first big acquisition to be made by CEO Sasan Goodarzi
since he took the role just over year ago
Intuit also announced itsquarterly earnings todayin which it reported revenue growth of 13% on revenues of $1.7 billion, beating analyst
estimates of $1.68 billion
However, it missed analysts& average expectations for earnings per share: it reported non-GAAP EPS of $1, while they were forecasting
$1.03.
&Our mission is to power prosperity around the world with a bold goal of doubling the household savings rate for customers on our
platform,& said Goodarzi, in statement
&We wake up every day trying to help consumers make ends meet
By joining forces with Credit Karma, we can create a personalized financial assistant that will help consumers find the right financial
products, put more money in their pockets and provide insights and advice, enabling them to buy the home they&ve always dreamed about, pay
for education and take the vacation they&ve always wanted.&
Intuit plans to keep Credit Karma — which makes more than $1 billion in
revenues annually — as a standalone operation, run by CEOKenneth Lin, who cofounded the startup with Ryan Graciano and Nichole
Mustard.
&We started Credit Karma with a goal to build a trusted destination for all consumers, to make financial progress regardless of
where they are in life,& said Lin, in a statement
&We saw the opportunity to enrich people financial lives through transparency, simplicity and certainty.&
The acquisition is an obvious fit
for Intuit, where it will serve two purposes
Intuit can tap Credit Karma customer base and range of services — it partners with some 100 financial service providers in its marketplace
— to complement those it already offers, to help upsell those users to Intuit premium, paid services
And Intuit can use it to grow its wider business by tapping a set of consumers — typically younger users — that Credit Karma has
possibly been more successful in capturing than Intuit has.
Including this deal, Intuit has made some 31 acquisitions to date
It has a track record of acquiring startups with big potential and running with them
One of its major business units today, Mint (for personal financial planning and management), is based on a startup of the same name that it
bought in 2009 (for the relatively modest sum of $170 million).
In reality, Credit Karma and Intuit have a lot in common in terms of what
While Intuit provides a set of services and software to professional accountants, perhaps its biggest claim to fame is that it helped build
and popularise a movement in &DIY accounting& and related software: a set of easy-to-use online tools that ordinary people can use to manage
their money, file their taxes and more.
Intuitcurrently has a market cap of over $77 billion, and while its share price was down about
3.75%in market trading today, it has over the last year (and more) seen a gradual rise in its share price — a reflection of its overall
profitability, stability and dominance in its particular area of financial services
After market close, the share price was up 2.21% in the wake of the Credit Karma news.
And this is also where Credit Karma comes in
The company started out originally in 2007 providing free credit scores, later extending that to full credit reports
Eventually, it used the data and audience it had amassed as the basis for an expansion into a wider range of related services — which,
like Intuit, Credit Karma built around the premise of ordinary consumers using the internet and cloud-based services to take charge of their
financial lives.
Credit Karma launch of a financial planning tool in 2013 drew a direct comparison to Intuit Mint
And since then, Credit Karma has launched other products that directly rival Intuit, for example a free tool to help people file their taxes
These not only represented direct competition, but a disruptive threat, since Credit Karma products skewed younger and were built on a
&free& premise (offering the products at no charge and instead making money off showing users and selling relevant, related products)
The fact that Credit Karma partners with so many other financial services providers also means it sitting on a huge data trove that it
leverages to build and personalise products, representing a data science angle for Intuit here, too.
The company reported crossing $500
million in revenues in 2017 (meaning it more than doubled revenues in the last two years), and it used that momentum to move into
international servicesand more
(I&d add that the diversification was significant for another reason: the Equifax breach of 2017 has cast a shadow on credit scores and
credit histories; and how they are used and sometimes misused.)
Credit Karma over the weekend told us that it would not comment on rumours
or speculation regarding the reports, but interestingly it had long eyed plans for an IPO, talking about the ideaas early as 2015, when it
was valued at just $3.5 billion.
A$500 million secondary round in 2018, at a $4 billion valuation, helped put off those plans for a while
Credit Karma had raised just over $645 million to date, according to PitchBook, with investors including Silver Lake, Tiger Global, Capital
G, Founders Fund, Felicis and others.
More generally, while we have seen some successes in the world of fintech IPOs — for example, both
Adyen in Europe and Square in the US have definitely gone up in the last five years — the availability of large amounts of private capital
from VCs and private equity have helped fintech startups, even the outsized ones like Stripe, stay private for longer, holding on for more
profitability, and/or possibly another kind of liquidity event to come along.
Even within the trend for wider consolidation in the world of
financial technology — where a number of smaller venture-backed startups, as well as more scaled up and mature fintech businesses, are
getting snapped up by bigger fish in a bid for more economies of scale — Credit Karma sale to Intuit stands out as one of the bigger deals
in terms of price.
CrunchBase has recorded around 150 fintech M-A deals in the years it tracked them, with some of the largest including the
acquisition of First Data by Fiserv for $22 billion; PayPal acquiring Honey for $4 billion; Fiserv also acquiring CheckFree for $4.4
billion; and PayPal acquiring IZettle for $2.2 billion (see a pattern here)?
