Is Bill.com’s $2.5 Billion Divvy Acquisition Worth the Price?

Late last year we wrote this piece about how a company with a boring name, was making some considerable waves in the small business space. Yesterday, that same company with a boring name, aka Bill.com, announced it was spending $2.5 billion in cash and stock to broaden its play in the small business space. 

The company announced it would acquire Divvy, a Utah-based startup that provides expense management software. The deal, which involves $625 million in cash and $1.875 billion in stock, seems like a logical extension of Bill.com’s value proposition.

We are, however, a bit awestruck (or maybe dumbstruck?) that Divvy is worth $2.5 billion. According to the deal’s press release, Divvy has 7,500 customers. Our simple math values each Divvy customer at $33,333. And here’s the thing. Divvy doesn’t even charge a monthly SaaS subscription. Instead, it takes a sliver of the transactions a customer completes using a Divvy-issued credit card. 

Bill.com’s Bland Name Belies Its Dazzling KPIs

 

Bill.com went public about 17 months ago and was valued at $1.6 billion at the time. Since then, the company has enjoyed a considerable run-up in its valuation, reaching a share price of $195 and a market valuation of about $16 billion. Since its peak in February, the company has settled back to a valuation of around $12 billion. So you might argue the company is playing with house money to acquire Divvy. Just this past January, Divvy raised $165 million at a $1.6 billion valuation. And now just 4 months later the company is valued at $2.5 billion. 

Boosting SMB Automation

The acquisition reflects Bill.com’s ambition to become the back-office financial applications provider for small and medium-sized businesses. Interestingly, some of Divvy’s customers include tech companies like Noom, e-commerce merchants like Solo Stove and Rhone, and iconic sports franchises like the Utah Jazz and the Atlanta Dream. 

Bill.com’s CEO and founder René Lacerte said in the deal announcement that the acquisition will further Bill’s “vision to transform SMB financial operations.” He added that the two companies were driving “customers’ digital transformations.” And, finally, that the “platform will provide more automation and real-time information to SMBs, enabling them to make more informed decisions.”

It makes a lot of strategic sense for Bill.com to extend its back-office financial management options for its customers. But we’re still curious about the valuation because we can assume that among Bill.com’s 115,000 customers, some no doubt already use Divvy. So the increment to Bill.com’s customer base will be relatively minor.

Even if none are already Bill.com customers, the addition of 7,500 on a base of 115,000 is just 6%. So for $2.5 billion, Bill.com better be getting some great technology and great employees. Based on a quick scan of Divvy comments on GlassDoor, that appears to be the case. 

Now it will be incumbent on Bay Area-based Bill.com to retain the apparently high-quality culture that Divvy has built. If it can’t do this, $33,333 per customer price will feel even more expensive than it does right now. 

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