Intuit bites off a lot with $12 bln Mailchimp deal

An Intuit office is shown in San Diego, California August 21, 2015. The tax-preparation software maker reported a fourth-quarter adjusted loss as expenses rose 17 percent and the company also forecast an adjusted loss for the current quarter. Intuit also said it plans to divest Demandforce, QuickBase and Quicken. REUTERS/Mike Blake

NEW YORK, Sept 14 (Reuters Breakingviews) - Intuit (INTU.O), the $154 billion maker of TurboTax and QuickBooks, wants a lot more small bananas. It’s paying about $12 billion for Mailchimp, the digital marketing and automation firm, in an effort to better crack the massive market for small business services. Mailchimp’s record suggests that it has a shot. But Intuit is also busy integrating personal finance site Credit Karma, which it bought last year for $7 billion. The key to success will be avoiding indigestion.

Mailchimp is private, and details of the deal are sparse as a result. What is known is that it made $800 million of revenue last year, about 20% higher than the previous year and nearly all of which is recurring. A price tag of about 15 times 2020 revenue may appear high compared to, say, small business-focused web firm GoDaddy (GDDY.N), which is valued at about one-third as much. But Mailchimp is growing nearly twice as fast and probably has higher operating margins. The company has also managed to finance growth through internal cash flow, as it has never taken outside investors in the 20 years since it was founded.

Intuit says buying Mailchimp will increase its total addressable market by over $30 billion. But small business services are fragmented between many separate providers, and plenty of firms, from giants like $1.9 trillion Alphabet (GOOGL.O) to startups, all want pieces of the pie. Doing two relatively big deals in two years means Chief Executive Sasan Goodarzi will have to work hard to show he’s not biting off more than he can chew.

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- Intuit said on Sept. 13 it had agreed to buy digital marketing firm Mailchimp for about $12 billion. The deal would be the accounting and tax software group’s largest acquisition to date and financed with cash and up to $5 billion of new debt. The total consideration includes $300 million of assumed Mailchimp bonuses to employees that will be paid in Intuit stock. After the deal is closed, Intuit will also issue $200 million in restricted stock to Mailchimp employees.

- Mailchimp had about $800 million of revenue in 2020, and revenue grew 20% compared with the previous year. About half of its revenue comes from the United States.

- Intuit bought personal finance site Credit Karma for just over $7 billion in 2020.

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Editing by Swaha Pattanaik and Marjorie Backman

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