In a grab for a share of the exploding Web-based banking market, QuickBooks parent Intuit Inc. agreed to acquire online banking services provider Digital Insight Inc. for $1.35 billion in a combination of cash and debt.Under the terms of the deal, which is expected to close during the first quarter of 2007, Intuit will tender $39 in cash for each share of Calabasas, Calif.-based Digital Insight - roughly 18 percent over the company's closing share price of $33 prior to the announcement. Intuit will also assume about $1 billion in debt financing.
The new merger will combine Intuit's financial management and tax software with Digital Insight's online banking services, delivery systems and, ideally, its roster of bank customers.
Digital Insight is Intuit's largest acquisition since it absorbed ChipSoft, the maker of TurboTax, in 1993 in a $225 million stock swap. At a press conference announcing the deal, Intuit chief executive Steve Bennett explained that the transaction "is all about increasing revenue growth rates."
Once the deal is completed, Intuit's capability will expand to serve 5,000 financial institutions, 25 million consumers and nearly 7 million small businesses. According to reports, more than 60 million people now use some form of online banking services, about double the number of Internet banking customers in 2002.
Bennett predicted that the growth in the new sector will come from small businesses having financial institutions outsource online banking to Intuit. The union with Digital aligns with Intuit's strategy of expanding its small-business customer base, which accounts for roughly 40 percent of revenue.
He added that the revenue opportunity from the acquisition emanates from consumers and businesses that currently aren't using online banking services. According to recent statistics, nearly 70 percent of small businesses in the U.S. with five or fewer employees don't use online banking.
What they bought
The 11-year-old Digital Insight, which reported $238 million in revenues for its most recent fiscal year, operates in three segments: Internet banking, business banking and lending. Its Internet banking segment includes online banking for consumers, including bill payment, while the business banking unit encompasses online business banking for small-to-large financial institutions. However, its underperforming lending unit - which assists financial institutions in streamlining underwriting and processing consumer loans through the Internet - has been a drag on earnings.
Meanwhile, Jeff Stiefler, chair and CEO of Digital Insight, agreed to remain with Intuit and will lead the Digital unit, which will provide the foundation for the company's financial institutions business arm.
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