“some people never go crazy.
me, sometimes I’ll lie down behind the couch
for 3 or 4 days.”
–Charles Bukowski, Some People
And away we go, GonzoBankers, with another active acquisition run in the world of Internet banking. Makes your heart dance and your soul clap, doesn’t it? First, Intuit bought Digital Insight in a deal that at least strategically made some sense. In fact, the company has already announced product plans [1] that provide a glimpse at how the companies are going to leverage the obvious potential of the DI and Quicken/QuickBooks marriage. True, at this point we’re just at the product announcement phase – interesting ideas as opposed to real, implemented products – but you can see at least some potential for these newly merged companies to make something unique.
Then there’s payment giant CheckFree [2] buying up-market Internet banking player Corillian [3]. This one doesn’t slap me across the face with an obvious “It’s about time!” You saw the press release… CheckFree is using cash and debt to acquire Corillian for $245 million or $5.15 per share – a jaw-dropping 49% premium over Corillian’s pre-announcement closing price. 49%? That’s true love, Bubba.
Who’s Affected by This Deal:
Corillian and CheckFree Stockholders
You know how accurate that all-important first impression typically is. That uneasy feeling in your chest when you first meet your daughter’s new, just-a-little-too-polite boyfriend is usually on the money. Well, the market registered its first impression on the CheckFree/Corillian deal. Following the announcement, CheckFree’s stock fell 5% to just under $42 per share. (This was the second straight acquisition – Carreker being the first – where CheckFree admitted that the deal would be dilutive to earnings in the near term.) Corillian’s stock immediately rose 45% to $5.00 per share.
The market’s gut reaction to this deal is telling. Clearly, shareholders of Corillian see the deal as a grand slam. It’s hard to worry about what the stock could have done in the long term when you have an immediate 50% price bump staring you down. For CheckFree, it’s mildly nauseating but not downright dysentery-inducing. It’s not a sizeable enough deal to inspire real panic. CheckFree reports annualized revenues of over $900 million; Corillian reports around $60 million. We’re talking about a company with nearly $3.2 billion in market capitalization entering into a $245 million deal. It’s just not big enough to have an overwhelming effect on CheckFree stockholders.
Since the initial announcement price movement, Corillian stock has remained relatively steady with a slight $0.06 per share decline, while CheckFree has fallen an additional $3.24 to $36.60 (another 8% decline from the pre-announcement price.)
CheckFree and Corillian Clients
Unless CheckFree decides to aggressively use Corillian as a loss leader, this acquisition should not open many doors for CheckFree customers. However, there could be some activity in the Internet banking world should CheckFree decide to go with the ORCC model of basically giving away Internet banking to solidify the bill payment relationship. Now that could open some eyes in banks and credit unions and cause them to take a close look at Corillian/CheckFree. I would be seriously surprised if that happened, seriously surprised, but it is an angle CheckFree could massage and play with.
Other than writing their checks to a different company, Corillian clients should not feel much deep impact from this deal either. Many Corillian clients are already using CheckFree for bill payment. If I’m a Corillian client now using Princeton eCom (another of Corillian’s partners) for bill pay, I have to wonder if I’m eventually going to get strong-armed into using CheckFree for bill payment. Anyone who has undergone a bill pay conversion knows that this is a potentially customer impacting and all-around pain in the neck project. The new combined entity should expect some serious push-back should it try to force CheckFree bill pay down its Corillian clients’ throats, but I have a feeling they’re going to try despite my sage advice.
The New CheckFree
It’s pretty understandable why CheckFree would want to have an Internet banking product in its arsenal. We can follow the logic of CheckFree seeking a front end for its recently expanded (via Carreker) payment capabilities. We get that. What is not immediately apparent is why CheckFree would pay a 50% premium for Corillian.
The press releases say that the companies hope to:
- Tighten integration between Corillian and CheckFree.
First, while this acquisition will likely force the Internet banking and bill pay units to play together nicely, Internet banking to bill pay integration is not a significant problem at any of my clients – many of whom use CheckFree and/or Corillian. It’s just not a problem many banks or credit unions are experiencing, making that line of reasoning to support the acquisition a bit dubious.Second, if CheckFree and Corillian haven’t pretty much gotten the integration between their two products done by now, it’s not going to happen just because of the acquisition.
- Improve customer service for the combined entity.
This one has some potential – baby teeth that could grow into some big, adult molars. My clients often are frustrated by mutual finger pointing between their bill pay provider and their Internet banking provider. The vendors love to blame each other when things go wrong, so the One Throat to Choke opportunity from the Corillian/CheckFree combination has some juice. Of course, delivering on the Better Service promise will be easier said than done, Chachi, but it has a glimmering light of promise anyway.
I suspect CheckFree also hopes that Corillian can open doors to some large banks and credit unions in its client base. Case law suggests that this introduction process will take years to convert into meaningful sales growth, but it could happen.
Internet Banking Providers That Partner with CheckFree for Bill Pay
This is the angle I like the most. CheckFree’s bill pay division has done a sound job over the years partnering with Internet banking providers – both specialty shops and core providers who sell their own Internet banking functionality. CheckFree’s Web site lists the following vendors as value added resellers of CheckFree:
- Corillian
- CU*Answers
- Digital Insight
- Fidelity National Information Services (FIS)
- Fiserv, Inc.
- FundsXpress
- IntegraSys
- PSCU
- S1
Clearly, most of these vendors are not reselling only CheckFree for bill pay; for instance, DI also offers Metavante for bill pay. But on that list are a few seriously heavy hitters in Internet banking with tens of millions of end users and choices about who they utilize for a bill pay partner. Think about this transaction from an Internet banking vendor’s perspective. If you’re DI, are you going to feel like every time you resell CheckFree, you’re putting money into the pocket of one of your most dreaded Internet banking competitors (Corillian)? It would be an understandable point of view to say the least.
This deal could tarnish CheckFree’s existing reseller arrangements with its Internet banking partners. Having enough of these reseller deals turn sour could certainly hurt CheckFree’s position in the financial institutions bill pay market. Granted, there may well be some long term contracts that prevent these CheckFree VARs from immediately jumping ship, and market pressure would prevent the Internet banking vendors from turning off the CheckFree option too quickly. But I have to think that over time a good number will indeed jump ship in favor of a bill pay partner who is less of a competitor in the Internet banking arena. Sales reps from Metavante and other bill pay providers, man the phones!
CheckFree’s acquisition of Corillian without a doubt makes observers squirm to explain it. It doesn’t have the immediate gut-level common sense feel that the Intuit/DI deal delivered. In fact, in some respects the deal is downright gut-wrenching. A 50% market premium? You have to do a lot of cross-selling and squeeze quite a bit of what those Harvard boys call synergy to pay for that. Other than Corillian shareholders in the short term and possibly Corillian/CheckFree customers in the long run, there aren’t any sure wins in this deal. It will just make the challenge of one-upmanship even greater for whoever buys S1.
Take ‘er easy, GonzoBankers. –smh
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