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Braintree Is On The Block, Had Acquisition Talks With Square And PayPal
- kloncks 13y agoIs it good or bad for BrainTree that this news is now public?
- nonchalance 13y ago> More recently, it had been in acquisition talks with Square, which also fell through, possibly because Braintree is asking for too high a valuation. > According to industry sources, Braintree has been asking for $1 billion, which seems unrealistic. It would seem that other suitors are trying to pressure Braintree to lower their target
- kloncks 13y agoSquare processes $10b. BrainTree processes $10b. How is Square valued at $4b and BrainTree can't sell for $1b?
- benologist 13y agoGrowth, and probably Stripe plays no small part.
- tlrobinson 13y agoThat's not how valuations work. There are a lot more factors than current revenue. Their business models are somewhat different.
- jordanthoms 13y agoMaybe it's because Square has a higher percentage of small merchants on their service, who can't negotiate better rates?
- pedalpete 13y agoIsn't valuation is based on not only current revenue and business model but also forecasts and potential? Square has a bit of a different opportunity than BrainTree as they are focusing on simplifying a real-world payments platform vs online and mobile payments. There seems to be less competition and a larger market for Square vs. Braintree I think.
- jfarmer 13y agoWhat are the first and second derivatives of those numbers with respect to time?
- jacquesm 13y agoThat's the right question to ask. The absolute values are important but not as important as the trends.
- tomkarlo 13y agoValuation is based on growth and expected future profit more than current revenue or processing volume. If two companies both process $10bn, but one makes 3% and is growing 25% YoY while the other makes 1% and is growing 5%, they should have radically different valuations.
- ajsharp 13y agoGrowth potential, total potential market size, other possible revenue sources (e.g. Square Marketplace).
- abalone 13y agoSquare probably has better gross margins than Braintree because they target a different market: small businesses. The value Square adds to that market is much more substantial: free POS system, mobile wallet app, promotion in their marketplace, Jack Dorsey's autographed photo, etc. Braintree (and Stripe) target ecommerce startups. Their value-add is streamlined APIs and tailored customer service. That value-add is nice but relatively smaller and less scalable to boot. As soon as those sites get big they will negotiate for lower rates they can get from a commodity processor. No doubt the big customers in their portfolio already have and we just don't know it. Square's got a whole world of small business to expand into, a much larger market than ecommerce startups. And their margins are more sustainable; it takes an awful lot of growth for a merchant to justify switching out all their POS systems and other Square lock-in, just to shave a few basis points off their processing rate.
- cesarpereira 13y agoBoth (leaning more heavily towards bad) Bad: Paypal as a potential suitor will make some existing and potential customers very nervous and that won't be good for customer acquisition. Other potential suitors may see other heavyweights passing on the deal as a negative. Good: The attention may increase the pool of suitors.
- callmeed 13y agoExactly. We process over $1M a year with Braintree (that's why I posted this article). In my opinion, PayPal is the worst possible scenario short of Braintree shutting down. The thought of forcing thousands of customers to re-enter billing information makes me throw up in my mouth a little.
- pbreit 13y agoWhy do you think that would be the case? That did not happen with Payflow and PayPal mgmt is quite a bit better now (the CEO mainly).
- cicloid 13y agoIsn't supposed to be easy to move the card details from the vault to other provider?
- ajsharp 13y agoNothing would be required of customers. They'd migrate the data over to Paypal's setup in such a scenario. Card data is stored with a symmetric encryption algorithm (e.g. reversible), so this type of thing could happen fairly easily.
- dkubb 13y agoContact Braintree if you're concerned. There are processes in place where they can transfer payment information (including credit cards stored for recurring billing purposes) to another payment gateway.
- bhauer 13y agoI would agree with the "bad" assessment. If I had accounts at BrainTree, I would be very worried about PayPal as a suitor. Ostensibly a fair percentage elected to use BrainTree because there were Not PayPal. I presently steer clients away from PayPal, and had previously recommended BrainTree. This casts doubt on that going forward. This would be similar to Oracle acquiring MySQL.
- pixelmonkey 13y agoThe CEO who got ousted, in 2011: “Without outside capital, we have to make do with less ... Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.” This was about 1 year before they raised a massive round from NEA/Accel. From "Bootstrapped, profitable, and proud" on 37signals blog: http://37signals.com/svn/posts/2800-bootstrapped-profitable-proud-braintree http://37signals.com/svn/posts/2800-bootstrapped-profitable-...
- dan_manges 13y agoI'm the former CTO of Braintree and one of the founding employees. I was there when Bryan Johnson hired Bill Ready as CEO and decided to move to Chairman. The authors of the TechCrunch article were either misinformed or speculating when they said that Bryan "lost his position" and that Bill joining was a "decision made by Accel." Bryan made the decision to hire Bill and move into the Chairman role without pressure from anyone.
- xfour 13y agoThat appears like a pretty first hand account, seems more legit than the usual speculation.
- kintamanimatt 13y agoThis acquisition culture is almost always bad for customers. Imagine what PayPal would do to Braintree if they acquired them. PayPal can't even manage their own risk without pissing customers off. I can only imagine they'd slowly turn Braintree into a braindead company that's nothing but a shell of its former self. I sincerely hope Braintree finds a way to keep its independence and continues standing on its own. We need a degree of competition and fragmentation in all industries so these companies keep up the pace of innovation. Every time I hear of a company being acquired, it feels like it's only a matter of time before the company is gutted or killed. It seems rare that everyone has their happy ending when it comes to acquisitions.
- natrius 13y agoWithout the acquisition culture, many of these companies would never exist or be able to raise the funds to grow to the point where they could have so many happy customers in the first place.
- CoachRufus87 13y agoMost companies lose their independence once they take outside funding. Those investors need to see a return on their investment somehow.
- frozenport 13y agoWe can only pray that conquered will conquer the conqueror.
- ajsharp 13y agoAnyone building a card processing business is going to have trouble finding long-term cash flow because the margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $10.4bn in revenue. I'd rather do business with someone like Balanced, who has a larger product vision than "well paypal sucks".
- cperciva 13y agothe margins are razor thin. For example, Visa processed $6.7 trillion in transactions and made $3bn in revenue. I don't care how thin the margins are, I'd love to have $3B of revenue.
- ajsharp 13y agoHa, wouldn't we all :) My point is only that it's damn hard to get to that number, and if you're a startup who's raised many rounds of capital, after a few years of grinding an acquisition by a company like paypal (read: ebay) starts to look like a nice option. To put that Visa number into perspective, according to various reports Square did $15bn in transaction volume last year. So, if you use the same ratio of transaction volume to revenue (0.16%) that would put Square's revenue at $23.2mln. For what it's worth, that's probably a generous ratio, as companies like Square and Braintree are all use Chase payments tech as their processor, which itself has to pay out to Visa and other processors. So these firms' margins are likely much lower than Visa's. As either a customer or a partner of one of these companies, I'd prefer doing business with a company that's building a base that doesn't essentially require acquisition if they can't grow to Visa's size.
- deleted 13y ago[deleted]
- pdog 13y agoThat $3 billion in revenue is for the April-June quarter, during which Visa processed $1.74 trillion in transactions.
- ajsharp 13y ago
- beachstartup 13y agowe use braintree and it works fine. wouldn't mind staying, or 'switching' to square. if paypal acquires them, we'd probably switch to square.
- aquark 13y agoDo you mean square or stripe? I don't see how Braintree and Square are interchangeable for anything other than physical point-of-sales use cases ... which doesn't seem like Braintree's sweet spot
- joeblau 13y agoI think he/she means Stripe :)
- beachstartup 13y agoi mean square - that's the company that's looking to buy braintree, right? am i seeing things?
- programminggeek 13y agoLooking at the numbers and making some estimates... $10 billion in transactions probably turns into about 1% in fees, so we'll say revenue is about $100 million. Being generous, let's say they are running on a 30% margin. That would put profits around $30 million a year. That's pretty good, but when you look at that number it would be a 10 year payback period at $300 million. At $1 billion, that is a 30 year payback period. Given the $69 million in outside funding, I'm sure they are pushing for a 10x return, so $690 is probably the ballpark of the asking price. They are probably asking for $1 billion in hopes of a counter around $750 million. If I were a company looking to acquire a merchant services provider, I would look at the cost of acquiring that $10 billion a year in transaction volume. Is it less than $1 billion? Probably. That is probably why MasterCard built this: https://www.simplify.com/commerce/ https://www.simplify.com/commerce/ instead of dropping $1 billion to buy stripe or Braintree. If you didn't have a big strategic need, the right price for Braintree is probably more like $200-300 million. Braintree won't sell at that valuation because they have raised too much money and it wouldn't be a big enough return. I could see PayPal buying Braintree, just for some of the more developer focused company culture, but I don't see why Square would buy them. My guess is Square and Stripe end up merging at some point. It almost feels inevitable.
- frankdenbow 13y agoI have also thought that square and stripe could merge but I think both companies have enough potential upside on their own to keep forging ahead without it.
- jacquesm 13y agoIs the founding team of braintree still in control of the company?
- Osiris 13y agoNo. According to the article, the investors kicked out the founder in 2011 and brought in a new CEO with a history of getting companies acquired.
- dcc1 13y agoHaving dealt with both Braintree and Stripe as a merchant Braintree's business is not worth anything, they are neither innovative nor streamlined nor work as well as Stripe
- sterwill 13y agoBraintree has a major advantage over Stripe: their terms of service. Did you actually read through all the prohibited businesses[1] in Stripe's ToS? Most of them are common-sense bad, but some of the descriptions are very general, and there are 56 of them. Are you sure your business isn't providing "personal computer technical support"? Offering any "extended warranties" with goods your business is selling? Maintaining "quasi-cash or stored value"? Or maybe one your web site's users posted "sexually-oriented or pornographic products or services"? Stripe prohibits accepting payments "in connection" with those things. [1] https://stripe.com/us/terms#prohibited-businesses https://stripe.com/us/terms#prohibited-businesses
- dcc1 13y agoYes I did, I wasted time with braintree who didnt accept my hosting business (7 year company is high risk apparently) while stripe has no problems actually looking at that list all card processors prohibit whats on that list, for example 2co one is very similar, and i doubt braintree would allow anything on it either
- deleted 13y ago[deleted]