MOUNTAIN VIEW, Calif. – A massive consolidation is in the near future for the financial technology market in the United States as Intuit is getting closer to its acquisition of Credit Karma.
Based on a report from the Wall Street Journal, the prominent financial firm Intuit is getting close to buying the tech-led company and financial technology portal Credit Karma for a deal worth $7 billion in both cash and shares. The report cited the source as people acquainted with the matter but didn’t further identify.
With the US FinTech market looking towards a lot of major consolidation in 2020 with an increasing number of financial firm giants keeping a close eye and buying futuristic and innovative tech-led companies, this merging of Intuit and Credit Karma could be the biggest deal in February.
The acquisition could be announced first thing on Monday. Assuming that the current talks will not fall apart and once the deal is finalized, it is expected to put Intuit, the maker of TurboTax, much deeper and ingrained into the core of the consumer finance world, according to the Wall Street Journal report. The purchase will also mark as the largest acquisition that the company has done in all its 37 years in the industry, the WSJ report added.
The deal, when completed, will also mark the first sizable acquisition under Sasan Goodarzi, who took over as the Chief Executive Officer of the company a little more than a year ago.
Intuit is a business and financial software company headquartered in Mountain View, California. The company develops and markets financial and business management software solutions from accounting, financial, tax preparation software, and other associated services to small and medium-sized firms and companies, accounting professionals, consumers, and financial institutions. Intuit provides software for tax preparation and filing, personal finance, payroll processing, and small business management.
Meanwhile, Credit Karma is taking on the world of personal finance. It works as a personal finance company with headquarters in San Francisco, California. The company offers various personal finance services from auto insurance, personal loans, home loans, car loans, student loans, balance transfers, and credit cards.
Particularly, Credit Karma advertises itself as an online personal finance platform that offers services that eliminate the guesswork when it comes to credit. The platform allows customers to get and monitor their credit scores and credit reports. All of its services are offered free of charge as well. Credit Karma also offers other tools and services based on the customer’s profile.
Credit Karma was valued at around $4 billion inside a private share sale from two years ago. As it runs like a personal finance platform, it will be interesting how Intuit plans to integrate Credit Karma in its table.
However, based on the current negotiation between the two companies, the tightly held Credit Karma is going to continue operating as a standalone unit, a source told the paper. The firm’s current Chief Executive Officer, Kenneth Lin, will also stay in charge of Credit Karma after the acquisition is finalized if the talk doesn’t fail.
It further stated that Credit Karma had received financial backing from the likes of the Ribbit Capital, a financial technology venture company, and Silver Lake, a private equity firm.
The upcoming purchase will support Intuit, adding Credit Karma to its already wide stable, which is expected to put the company in a stronger foot in the increasing territory of online personal finance. Intuit is the creator of the highly popular Turbo Tax, which is an online software for tax filing that millions of people are currently using. Other offerings from Intuit includes an online budgeting platform that also offers customers other financial products and QuickBooks, bookkeeping software that is used by Mint and other major businesses.
The merging of the two companies if the deal won’t fall through will bring both Intuit and Credit Karma into better standing in the industry, as well as their customers. By joining forces, both firms could fine-tune and level up their suggestions to their customers by widening the range of the financial data they are using to make recommendations.
Expanding the sales base is critical, especially during the period when Morgan Stanley stated that it is anticipating that software companies offering tax preparation and filing services are looking towards a headwind of profits this year from every tax return. It is especially possible with the combined impact of the decreasing need for services that offers assistance to do-it-yourself tax filers and the increasing platform of free filings.
Nevertheless, Keith Weiss, an analyst from Morgan Stanley, had expected that Intuit is looking towards hitting the peak of its implied customer tax assistance with the TurboTax continues to secure market shares. Market stocks of Intuit have increased by around 14% since January this year, which is significantly high over the 3.3% gains in the S&P 500 Index early this year.
Meanwhile, during the last quarter of 2019, Credit Karma has already been considering going forward with its initial stock offering. The plans came amid the series of trading debuts that have gotten very weak performance according to the newspaper report.
But, the move of Credit Karma to join forces with Intuit is expected to back up its rapid rise in the market. On the other hand, Intuit, which was founded in 1983, has gone for its IPO in 1993 and has a current market value of around $77 billion.
However, getting into the IPO market has appeared more ambiguous with startups like Uber technologies Incorporated getting disappointing debuts. On the other hand, the merger market, particularly when it comes to the financial technology world, has stayed promising and strong. Merger deals of FinTech companies have accounted for some of the biggest transactions this period in 2020. Some mergers announcement includes Morgan Stanley’s acquisition of the E*Trade Financial Corporation, which was estimated at around $13 billion the previous week. Last month, it was also announced that Visa Incorporated is joining forces with the startup Plaid Incorporated, with the deal valuing around $5.3 billion.
Aside from the upcoming announcement of the purchase, Intuit is also expected to publish its second-quarter earnings report on Monday.