Why did Bill.com pay $2.5B for Divvy?

As expected, Bill.com is buying Divvy, the Utah-based corporate spend management startup that competes with Brex, Ramp and Airbase. The total purchase price of around $2.5 billion is substantially above the company’s roughly $1.6 billion post-money valuation that Divvy set during its $165 million, January 2021 funding round.

Divvy’s growth rate tells us that the company did not sell due to performance weakness.

Per Bill.com, the transaction includes $625 million in cash, with the rest of the consideration coming in the form of stock in Divvy’s new parent company.

Bill.com also reported its quarterly results today: Its Q1 included revenues of $59.7 million, above expectations of $54.63 million. The company’s adjusted loss per share of $0.02 also exceeded expectations, with the street expecting a sharper $0.07 per share deficit.

The better-than-anticipated results and the acquisition news combined to boost the value of Bill.com by more than 13% in after-hours trading.

Luckily for us, Bill.com released a deck that provides a number of financial metrics relating to its purchase of Divvy. This will not only allow us to better understand the value of the unicorn at exit, but also its competitors, against which we now have a set of metrics to bring to bear. So, this afternoon, let’s unpack the deal to gain a better understanding of the huge exit and the value of Divvy’s richly funded competitors.

Divvy by the numbers

The following numbers come from the Bill.com deck on the deal, which you can read here. Here are the core figures we care about:

  • “~$100 million annualized revenue,” calculated using the company’s March results multiplied by 12. That puts Divvy’s March, 2021 revenues at around $8.3 million.
  • “>100% revenue growth YoY,” again calculated by leaning on the company’s March results. So, we can’t be sure that its full Q1 2021 growth was over the 100% mark. Still having its most recent Q1 month generate a three-figure growth rate is good. It also lets us know that the company did no more than $4 million or so in March 2020 revenue.
  • “~$4 billion annualized TPV,” or total payment volume. Again, this is a March number annualized.

This lets us price the company somewhat. Divvy sold for around 25x its current revenue rate. That’s a software-level multiple, implying that the company has either incredibly strong gross margins, or Bill.com had to pay a multiples-premium to buy the company’s future growth today. I suspect the latter more than the former, but we’ll have to scout for more data when Divvy shows up in Bill.com results after the deal closes; that data is a few quarters away.

Divvy’s growth rate tells us that the company did not sell due to performance weakness. Its March 2021 growth rate allows us to infer that it had plenty of room left to expand. That means that what Brex and Ramp and others are telling us, that their market is fertile ground for their product mix, is not bullshit. Which, in turn, implies that those competing, yet-independent startups could have lots of growth ahead of them. This helps contextualize the recent Brex round and its new $7.4 billion valuation.

Finally, TPV. Divvy is selling for 62.5% of its TPV. That’s an incredibly useful number to have, as companies in its domain are more likely to share TPV numbers over hard revenue figures. As we have both TPV and we have run rate metrics, we can infer a roughly 2.5% conversion of TPV to revenues amongst corporate spend startups that do not charge for their software. Considering what we know about the corporate card interchange market, the resulting ratio of revenue:TPV feels dead-on.

So, what can we learn about Brex and Ramp? From our notes on Ramp’s dual April rounds:

  • As part of its news today, the startup shared that it is “nearing” a transaction run rate of $1 billion. Glyman confirmed to TechCrunch that the metric was calculated on a month’s volume multiplied by 12, a reasonable method of determining the figure.

Let’s presume for the sake of argument that Ramp has reached the $1 billion annual TPV run rate. It does not charge for software — yet — so corporate card interchange is its revenue source. Using Divvy’s sale-generate metrics, we can loosely imply a $25 million run rate for Ramp and a valuation of $625 million for the smaller company. However, Ramp was valued at $1.6 billion in its most recent round. Why is Ramp being valued at a much higher valuation:TPV ratio than Divvy? Faster growth, we presume. Given that Ramp is much younger than Divvy, we can expect it to be growing more quickly. So its current revenues — or TPV — costs more to buy.

What about Brex? During a chat with its CEO after its recent funding round, we learned a few things:

  • Per [CEO Henrique] Dubugras, from March 2020 to March 2021, Brex grew its revenues and TPV, or total payment volume, by more than 100%. As Brex reached $1 billion in TPV during its first seven months of its existence, again according to its CEO, the company’s aggregate TPV add during that 12-month period was in excess of that figure. Multiples higher, by our reckoning.

We’re rooting around somewhat in these numbers for hard figures, but given that Brex is growing at around the same pace as Divvy, it had best have far more TPV to warrant its valuation premium over its Utah-based rival. Going back through notes and emails with Brex’s CEO, it seems likely that the unicorn does have a TPV advantage of the recently exited Divvy. How much, however, is hard to say.

Using Divvy’s TPV-to-valuation ratio of 62.5%, we could figure that Brex’s TPV today, on a run-rate basis, is around $12 billion. I have precisely no idea if that figure is ballpark correct; Brex could be growing a bit faster than we think, which would reduce its current TPV volume requirements. Or its investors could be betting that its new ~$500 yearly software package will prove growth-accretive, thus allowing Brex to garner a greater valuation today in the anticipation of coming revenue adds.

That’s our first read. All told, it’s great to get some hard numbers and a real exit price for the corporate spend category. As there are a number of unicorns in its stable that want to eventually find some liquidity of their own.