
Braintree Is On The Block, Had Acquisition Talks With Square And PayPal - callmeed
http://techcrunch.com/2013/09/05/braintree-is-on-the-block-had-acquisition-talks-with-square-and-paypal/
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programminggeek
Looking 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.

~~~
jacquesm
Is the founding team of braintree still in control of the company?

~~~
Osiris
No. 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.

~~~
scalenemuscles
I think it's relevant to point out the former CTO explicitly stated earlier
today in the thread that the founder wasn't kicked out:

"I'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."

[https://news.ycombinator.com/item?id=6338053](https://news.ycombinator.com/item?id=6338053)

~~~
vidarh
That may very well be true - if he wants the company sold, why not, especially
if he wants to avoid getting tied into working for an acquiring company for
years.

That said, I've also been involved in a company (as co-founder) where finding
C-level execs to parade around to state that the CEO (one of my co-founders)
left voluntarily would be easy enough.

Most of them wouldn't know differently either, not having been privy to the
conference calls where the investors made it clear they'd find an excuse to
fire him for cause and tie him up in court over his shares for the next few
years if he didn't "volunteer" to take 6 months pay, put on a brave face and
leave. What most of them _saw_ was the show my co-founder put on to get the
best deal possible and leave gracefully.

I'll hasten to add that I don't _know_ this guy, so for what I know he was in
the room for every conversation Bryan Johnson had with the investors at
Braintree or otherwise actually did have the inside track. Just pointing out
that it's also easy to think you have the inside track on these types of
things without having a clue about what actually went on.

~~~
jacquesm
Second this. There can be many layers of understanding to things like this and
it is all too easy to think you were an eyewitness to a real life event when
in fact you were just watching a well-choreographed ballet.

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ajsharp
Anyone 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
_the 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
Ha, 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.

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pixelmonkey
The 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-...](http://37signals.com/svn/posts/2800-bootstrapped-profitable-
proud-braintree)

~~~
dan_manges
I'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
That appears like a pretty first hand account, seems more legit than the usual
speculation.

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kintamanimatt
This 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
Without 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.

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kloncks
Is it good or bad for BrainTree that this news is now public?

~~~
cesarpereira
Both (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
Exactly. 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
Why 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).

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beachstartup
we 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
Do 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
I think he/she means Stripe :)

~~~
beachstartup
i mean square - that's the company that's looking to buy braintree, right? am
i seeing things?

~~~
joeblau
Ah I thinking Stripe because Stripe is the credit card processing API, Square
is the Point of Sale dongle for your mobile device. I don't if switching from
PayPal or Braintree to Square would even work :)

~~~
bdcravens
If Square acquires Braintree I presume nothing would change.

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dcc1
Having 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
Braintree 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
Yes 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

