After one month off for a summer break, we are back looking at interesting M&A deals announced during the last few weeks.

One deal that has caught our eyes in August was the acquisition of Close Brothers Retail Finance (CBRF) by Klarna, the Swedish provider of financial services and payment solutions.

CBRF is a UK focussed provider of retail financing products to something like 600 merchants and a loan book of £66m in mid-2018. Its solution is easily integrated with existing POS infrastructure (in-store as well as online) and then enables the merchant to offer different loan products to its customers. In addition to that it provides data analytics on issues such as buying habits, customer conversion and spend analysis as well as revenue trends.

Klarna is undoubtedly the better known of the two companies. Having started by providing invoice-based payments and payment by instalments to e-commerce customers in Sweden, not only is Klarna now licensed as a bank, it has also geographically expanded for example into Germany with acquisitions of sofort and BillPay. In the UK it’s Pay Later product has for example been implemented by Arcadia Group or JD Sports.

Klarna Group generated revenues of approx. €270m in the first half of 2018 with an operating income of €11m. Outstanding loans to customers on its balance sheet were almost €1.5bn. It is an obvious statement to make but when you run such a big loan book you need to be very very good at risk management (and collections for that matter) and this has always been one of the key strengths of Klarna. In order to do that Klarna needs data to continuously improve the risk engine and the different scenarios and risk scores that are being calculated within seconds. Yes, the CBRF acquisition will provide Klarna with a stronger footprint in the UK, one of the leading consumer lending markets in Europe, but it also provides Klarna with access to highly valuable data such as spending patterns, repayment cycles, defaults that can be leveraged and fed into its existing risk tools.

Klarna will undoubtedly continue to be one of the leading European if not global players in providing delayed payments in omnichannel environments and acquisitions such as the one of CBRF are another piece in the risk profiling puzzle.‍

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