American Express Set to Purchase SoftBank-Backed Kabbage

UTC by Steve Muchoki · 3 min read
American Express Set to Purchase SoftBank-Backed Kabbage
Photo: Kabbage Inc. / Twitter

With the deal happening at a time when many businesses are struggling to survive due to the ongoing coronavirus pandemic, American Express is set to largely benefit financially from the acquisition of Kabbage.

Through its official website on August 17, Kabbage announced that it had signed an agreement to sell its business to American Express Co (NYSE: AXP) for an undisclosed amount of cash.

Kabbage boasts to have provided more than $9 billion in working capital. In addition, it was among the first fintechs to issue loans through the Paycheck Protection Program that included $349 billion from the federal government.

“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,” said Anna Marrs, president of Global Commercial Services at American Express, in a statement. “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.”

“Together, we will endeavor to revive a sector integral to our economy and its recovery,” Kabbage CEO and co-founder Rob Frohwein stated. He added that the deal is “great for investors and employees, but also amazing for the small businesses for which Kabbage and American Express share a passion and purpose.”

Bigger Picture of Acquisition of Kabbage by American Express

Kabbage had its business growing despite the coronavirus pandemic, whereby it previously ranked number 24 on the 2020 CNBC Disruptor 50 list. The company had managed to develop a platform that uses machine learning algorithms to assess and loan out money to small business owners.

With the deal coming in at a time when most businesses are struggling due to the ongoing coronavirus pandemic, American Express is set to largely benefit financially from the acquisition.

Although the agreed financial terms were not disclosed during the announcement, speculations can lead to some plausible answers.

According to its past fundings, the company had raised nearly $990 billion in debt and equity. Furthermore, it was valued at over $1.2 billion in its last equity round of $250 million, in 2017, led by SoftBank, hence, making the deal worth a huge chunk of money.

American Express Co shares have struggled during the first half of the year, mostly due to the huge impact of the global COVID-19 crisis. According to Marketwatch data metrics, AXP shares are down 21.64% YTD, putting into perspective that they were trading around $97.58 at the time of publication.

However, in the past three months, AXP shares have shown signs of recovering as they are up 11.79%.

With the Kabbage acquisition, American Express is probably going to see an increase in its revenue hence a rise in its share value in the coming quarters.

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Steve Muchoki

A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies. Mythology is my mystery! "You cannot enslave a mind that knows itself. That values itself. That understands itself."

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