Expanding its reaching into the fintech space, American Express announced plans to acquire Kabbage. Terms of the deal were not disclosed.
The acquisition does not include Kabbage’s pre-existing loan portfolio. Kabbage made a host of loans under the Paycheck Protection Program in recent months.
“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 release announcing the deal. “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.
“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.”
American Express said in the release that the transaction represented an important step toward its goal of being an essential partner to small businesses through a broad range of payment, cash flow and financial management tools.
Under 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, eGift certificates, and the ability to centralize funds through the company’s recently launched business checking account.
“At Kabbage, we have always made the success of America’s small businesses our primary objective,” Kabbage co-founder and CEO Rob Frohwein stated. “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.”
With the addition of Kabbage’s technology, products and people, American Express said it planned to offer a broader set of cash flow management tools and working capital products to its millions of small business customers in the U.S.
The acquisition is expected to close later this year, subject to customary closing conditions.
Moody’s Analytics said in a note that the deal, what it called a modest acquisition, would be a credit position as it gives Amex a bigger presence in the small-business lending market and accelerates ongoing efforts to further entrench its existing small business client base with additional services.
Moody’s said the purchase for an undisclosed price came after Kabbage halted lending in March, which the analysts believe was a pandemic fallout.
“We believe this was a forced sale, which demonstrates the inherent weaknesses and challenges of smaller fintechs competing with much larger incumbent financial institutions,” Moody’s stated. “We believe that Amex is acquiring Kabbage to expand the services it offers to its existing small business customer base. Amex is the largest small business card issuer in the U.S.”
Moody’s said that in addition to lending, Kabbage provides a suite of tools to small-business clients to digitally manage payments and cash flow. The company’s senior leadership will join Amex.
“ Although we believe the acquisition will likely take several years before it has more than a very modest effect on Amex’s profitability, expanding its product offerings is particularly timely given the pandemic’s disproportionately negative effect on the company,” Moody’s stated. “The decline in Amex’s capitalization will be modest, but the acquisition brings typical integration risks, particularly those of a small entrepreneurial firm and a large, established incumbent.”