Hear us out, though: Why wasn’t the deal more expensive?
Rocket Companies announced this morning that it will purchase Truebill for $1.275 billion in cash.
Rocket Companies is best known for its Rocket Mortgage product, while Truebill is a consumer-facing app that helps consumers manage subscriptions, automate savings and budget. The deal’s price tag will prove lucrative for Truebill shareholders. PitchBook data indicates that Truebill’s final private valuation was $530 million after its last round was counted. That $45 million investment took place earlier this year.
So, a quick more-than-double for Truebill’s final investors, and an even bigger return for its earlier backers. Not bad, right?
Let’s play Guess! That! Multiple!
Given that Truebill is selling for a hair under $1.3 billion, you have the information you need to come up with an estimate for the startup’s annual recurring revenue (ARR). In broad terms, where do you think the company’s top line will land at the end of the year?
If you guessed something around $50 million, our heads are in the same spot. Tech valuations are high despite some recent declines, and fintech is hot. So, a multiple in the mid-20s felt like a good guess.
Wrong. Here’s Rocket (emphasis added):
This new line of business will also add consistent monthly revenue for Rocket Companies. Today, monthly payments made by clients to the company’s mortgage servicing operations generate $1.3 billion in servicing income on an annualized basis. Rocket Companies boasts 2.5 million serviced clients and has an industry-best retention rate of 91 percent. Truebill is on track to generate $100 million in annual recurring revenue. That number is consistently growing, with 2021 revenue more than doubling that of 2020.
Hot dang. That’s a surprise.
Truebill is going to close out the year with roughly double the ARR that we anticipated. And even more, the company is doubling in size yearly. That’s the precise profile that companies want to put up before going public: big revenues and fast growth. And yet instead of going public, Truebill is selling itself for under 13x its current ARR. That number will compress as time continues, to the single digits in 2022, provided that growth can keep up at Truebill in the new year.
It feels rather cheap, frankly.
The deal being all-cash means that Rocket might have gotten a discount of sorts; shares are cheaper than cash, and Truebill likely could have eked out another $100 million if the deal had been, say, 50% stock. We’re speaking in very loose numbers, mind.
Still, the deal is good news of a sort, but also an omen. Why did a ~100% growth, nearly nine-figure ARR fintech just sell for barely unicorn money? As noted, the price means sweet, sweet holiday liquidity for Truebill’s backers, but for other fintech companies that may have just received an unwelcome comp for the holidays, the numbers are hardly bullish. They feel a bit soft, honestly.
Perhaps we’re seeing the impact of Nubank’s somewhat slack IPO. Or this could just be a general downward tilt in software multiples that we’ve seen in recent quarters. Or there’s something inside Truebill that is yucky — perhaps it has far greater sales and marketing expenses than we might anticipate; fusing itself to Rocket could lower its customer acquisition costs, perhaps improving its economic profile.
Regardless, we’ll get more data when Rocket reports its first full quarter inclusive of Truebill. The deal is expected to close this year.
