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Andrew Harrer/Bloomberg
American Express
has agreed to buy nearly all of fintech Kabbage as it seeks to expand its services for small businesses.
Financial terms weren’t announced, although press reports peg the sale at $850 million. AmEx (ticker: AXP) is buying Kabbage’s team as well as its suite of financial technology products, data platform, and IP built for small businesses. This includes Kabbage’s flexible lines of credit, online bill payment, cash flow visualization tools, e-gift certificates, and the ability to centralize funds through the company’s recently launched business checking account, according to a statement. The deal is expected to close later in 2020.
“We are super thrilled to be joining an amazing originator,” Kabbage CEO Rob Frohwein told Barron’s. “This is really an entrepreneur’s dream come true.”
Barron’s reported earlier in August that Kabbage was considering a sale after receiving expressions of interest and had hired FT Partners, an investment banking firm.
Kabbage, of Atlanta, was founded in 2009 by CEO Frohwein; ex-chairman Marc Gorlin; and Kathryn Petralia, president, as a way to provide quick funding to small businesses. The fintech, through its website and mobile app, underwrote and serviced loans of up to $250,000 that were provided by Celtic Bank, a Federal Deposit Insurance Corp. member. More than 225,000 U.S. small business clients have accessed over $9.5 billion of working capital through Kabbage, the company said in March.
The fintech has raised nearly $500 million in equity capital and over $2 billion in debt funding. This includes a $250 million investment from SoftBank in 2017 that valued the company at $1.2 billion.
American Express is a leading provider of small-business credit cards and has over 2.5 million customers. With the transaction, AmEx will gain Kabbage’s 500,000 clients, bringing its small business client base to three million, said Anna Marrs, president of global commercial services at American Express.
“This acquisition accelerates our plans to offer U.S. 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,” Marrs said. “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.”
AmEx, however, is not buying Kabbage’s pre-existing loan portfolio or attendant services, Marrs told Barron’s. Kabbage’s loan customers will be serviced by a separate entity that has yet to be established, she said.
“We are not buying any of the Kabbage loan book,” Marrs said. “It resides with the bank and Kabbage wasn’t the bank…American Express and Kabbage are making sure the customers are taken care of.”
It’s unclear how many loans Kabbage has that are not going to AmEx. Kabbage does not break down specific loan details, an AmEx spokeswoman said. Kabbage and Celtic Bank could not be reached for comment.
The sale comes several months since Kabbage stopped originating loans in March for its Celtic Bank partnership as the Covid-19 pandemic shut down businesses across the U.S. The company furloughed a significant number of its roughly 600 employees and stopped handling new loans for its small-business clients. After the layoffs, Kabbage currently has about 300 employees, an AmEx spokeswoman said. All of those employees are joining AmEx, Frohwein said Monday.
Kabbage in April was one of several fintechs deputized to provide loans during the Paycheck Protection Program. By the time the program ended on Aug. 8, Kabbage said it had become the second largest PPP lender in the country by application volume, according to an Aug. 13 statement. The fintech processed nearly 300,000 approved PPP applications valued at over $7 billion, the statement said.
American Express plans to take Kabbage’s capabilities, which include single sign-on and the ability to share data across platforms, and roll it out to its customers in 2021, Marrs said. She wouldn’t discuss future acquisitions but said her focus will be on AmEx-Kabbage’s three million customers. “Given the size of the base, we’ll give them the priority and grow from there,” Marrs said.
FT Partners could immediately not be reached for comment.
American Express stock has dropped 2.8%, lagging the
Financial Select Sector SPDR ETF’s
(XLF) 1.6% decline, the
S&P 500’s
0.3% rise, and the
Dow Jones Industrial Average’s
0.3% decline.
Write to Luisa Beltran at [email protected]
