It was a bit unexpected when earlier this month PayPal Holdings (NASDAQ:PYPL) announced that it agreed to acquire privately-held Swift Financial. That's because PayPal isn't really a frequent buyer of assets. It has, however, proven that it's a smart deal-maker. This particular agreement is only the latest in a series of clever ones that it's closed.
Adding to the list of pals
Swift Financial provides working capital for small- and mid-sized businesses (SMBs). For such entities, the company says, "[t]he difficulty of getting a loan from a bank has not improved with the times -- the process remains long, labor intensive, and uncertain." It makes its money by offering more efficient solutions.
This should sound at least distantly familiar to PayPal shareholders. The company already has a division active in this segment, called, rather unimaginatively, PayPal Working Capital. Since PayPal created the unit in 2013, the company says, it's helped over 115,000 SMBs access a total of more than $3 billion in funding. Swift Financial is smaller, with $1.5 billion-plus in funding to date and a bit north of 20,000 customers.
According to PayPal, Working Capital and Swift Financial are complimentary, and don't represent a doubling-up of the same capacity.
"While PayPal Working Capital provides access to capital based exclusively on proprietary insights," PayPal wrote in the press release heralding the deal, "Swift's technology will allow us to assess supplemental information to more fully understand the strength of a business and provide access to complementary financing products to meet the needs of small and mid-sized businesses."
Based on PayPal's clever deal making in the recent past, I'm inclined to buy this.
Well aware that determined rivals like youthful Square and well-established Visa (NYSE:V) and MasterCard can push PayPal out of the modern-payment solutions segment if it doesn't stay on its toes, PayPal has been very busy signing agreements with some of the top names in finance and tech.
Over the past few years, this has resulted in collaborations with top-shelf financial companies. For example, holders of cards issued by JPMorgan Chase, Citigroup, Wells Fargo, and Discover Financial Services can opt to pay via PayPal by flashing that plastic.
And earlier this summer, PayPal entered into an arrangement with Bank of America in which the lender's credit card holders can more easily add their cards to PayPal accounts. PayPal has even inked deals with potential rivals, signing one with Visa to offer European consumers PayPal-branded Visa debit cards.
The company isn't just focusing on large, traditional financials, it's also plugging into the 21st century digital world. Recently it struck a deal with Chinese web services giant Baidu allowing the Asian company's mobile wallet users to buy goods at PayPal merchants located out of that country. It also now has a deal with Apple that permits iTunes users in 12 countries to buy content through PayPal.
These collaborations are helping PayPal expand and grow. The company said they were a big reason for its estimates-beating Q2, in which it grew revenue by 18% on a year-over-year basis (to nearly $3.14 billion), on the back of total payment volume that rose 23% to cross the $100 billion mark for the first time. Net profit, meanwhile, zoomed ahead by 51% to land at $747 million. Forward guidance was also lifted.
This Fool's take
Swift Financial isn't a giant entity, so we shouldn't expect a big, immediate boost in revenue or profitability for PayPal.
But if any company has proven it can work deals to its advantage, it's PayPal. I think the fusing of Swift Financial and the company's own Working Capital unit will positively affect the top and bottom lines. After all, drawing growth from deals has really helped PayPal boost its fundamentals lately; we should expect the same with this one.
Neither PayPal nor Swift Financial has disclosed the price of their transaction. PayPal said it expects the deal to close later this year.