Capital One revealed on Thursday its decision to acquire payments startup Brex for $5.15 billion, continuing the trend of strategic acquisitions by the bank's CEO, Richard Fairbank.
Disclosed in the firm's fourth-quarter earnings report, the transaction is structured with a 50% cash and 50% stock split. The acquisition comes as Brex experienced a valuation dip from $12.3 billion in 2023.
Following the announcement, Capital One's shares fell approximately 3%.
Richard Fairbank, a unique figure as a founder-CEO of a major U.S. bank, led Capital One in acquiring Discover Financial last year for around $35 billion. This acquisition enhanced Capital One's positioning by providing access to an extensive payment network.
"From inception, we aspired to create a payments company poised at the leading edge of the tech revolution," Fairbank stated. "Acquiring Brex propels us forward, especially within the business payments arena."
Fairbank further praised Brex for its pioneering approach that combines corporate cards, banking, and spend management software. "Brex stands out in the fintech industry for developing a vertically integrated platform," he added.
Despite Brex's notable achievements, the more than 50% drop in its valuation highlights the challenges facing even successful fintech entities in the current market.
Initially recognized for lending to startups through its cards, Brex has broadened its scope to service both large established companies and startups, including notable names like Robinhood, Zoom, and Anthropic.
Capital One, a long-time provider of business credit cards, saw Brex's business model as promising, suggesting it was a key factor in pursuing the acquisition, according to an informed source.
"Our growth trajectory was strong enough without this acquisition," Brex CEO Pedro Franceschi told CNBC. "However, merging Brex's technology with Capital One's expansive reach and resources presents an opportunity for accelerated scaling."