Share prices of Bill (BILL 3.21%) fell as much as 16% early Thursday following a Bloomberg report on Wednesday that the financial automation software provider for small- and mid-sized businesses (SMBs) was close to making a large cash-and-stock acquisition. Bill's shares partially rebounded to trade down around 9% as of 3:45 p.m. ET after the company denied the news.
On Bill's (rumored) $2 billion acquisition
According to the Bloomberg article published late Wednesday evening, "people with knowledge of the matter," told the financial news outlet that Bill was "in advanced talks" to acquire digital payment tools company Melio Payments. The cash-and-stock deal valued Melio at $1.95 billion, Bloomberg said. That value would put it at roughly half of Melio's $4 billion valuation in 2021 which was set after the company raised $250 million in an investment round led by venture capital firms Thrive Capital and General Catalyst.
"While discussions are at a late stage," Bloomberg's sources added, "they could still be delayed or falter, and terms could change."
If you're wondering why such a deal might be viewed unfavorably by the market, look no further than Bill's modest market capitalization of around $6 billion. The company ended last quarter with around $2.65 billion in unrestricted cash, cash equivalents, and investments on its balance sheet, and roughly $1.91 billion in debt. Any cash it would have opted not to allocate to such a large acquisition (relative to its market cap) would mean diluting existing investors by issuing new shares to fund the remaining stock portion of the deal.
What to think of Bill's denial and what's next for investors
In a press release Thursday morning, Bill's management addressed the report, noting that "a news agency issued an article about a rumored acquisition between BILL and another company."
"Although BILL's general policy is not to comment on market rumors or media speculation," the press release explained, "BILL is not pursuing any such acquisition at this time."
That's fair enough. But it also doesn't specifically state that Bloomberg's reporting was inaccurate. To the contrary, it's quite possible that Bill was previously pursuing the acquisition as described, but opted to abandon its efforts either during the normal course of negotiations or even after it witnessed the market's particularly violent negative reaction to the news.
In any case, it seems Bill won't be making any big acquisitions for the time being. And its shareholders might be better off for it.
