CheckFree Spends Big for Corillian, But Gains Key Bill-Pay Assets

In a deal that continues a trend toward consolidation among tech companies in the payments industry, bill-payment services provider CheckFree Corp. on Wednesday announced that it plans to buy online-banking software maker Corillian Corp. for $245 million. The acquisition, which will produce a nice Valentine's Day windfall for Corillian shareholders, comes just one week after financial-management software maker Intuit Inc. closed on its acquisition of a key Corillian rival, Digital Insight Corp., for $1.33 billion (Digital Transactions News, Nov. 30, 2006). Atlanta-based CheckFree says it processes more than 1 billion transactions annually and distributes more than 18 million electronic bills per month through more than 2,000 financial-services sites. Hillsboro, Ore.-based Corillian, meanwhile, supports more than 30 of the top 100 U.S. banks and 21 of the top 100 U.S. credit unions with its online-banking software and related technology, which includes online fraud management. In announcing the deal, CheckFree confirmed what analysts have been saying of late, that electronic bill payment and online banking are natural partners. “This acquisition will provide banks and billers with a significantly improved ability to serve their customers,” said Peter Kight, CheckFree chairman and chief executive, in a news release. “Together, CheckFree and Corillian will be able to deliver more efficient integration and innovation, while increasing consumer-service levels across the online-banking experience.” Also in the release, Alex Hart, Corillian's president and chief executive, added “Corillian and CheckFree have the potential to accelerate the delivery of future generations of online-banking technologies for the industry.” CheckFree will pay $5.15 per share for Corillian, a 49% premium over Corillian's $3.45 close Tuesday on the NASDAQ stock market. At least one analyst was unfazed, saying the market is finally recognizing Corillian's value. “I actually don't think it's rich, I think they [Corillian] are highly undervalued,” says Dan Schatt, an analyst with Boston-based Celent LLC. According to Schatt, Corillian's market capitalization has been relatively low because of the vagaries of its revenue flows, which rely heavily on software-licensing fees. In November, Corillian said it would start to change that by offering its products on an ASP, or application-service provider, model in which Corillian hosts the software being used by a customer. The ASP model will enable Corillian to add more small and medium-size financial institutions as online-banking clients, further adding to CheckFree's strong presence in that sector, according to Schatt. “There are a lot of synergies between these two companies,” he says. Another analyst, Gwenn Bézard of Boston-based Aite Group LLC, noted in a report last September that CheckFree and Corillian increasingly were competing in some key areas, such as bill-pay warehousing, or the storage of data that facilitates the service. “An acquisition of Corillian (2005 revenues: U.S. $49.2 million) by CheckFree (2005 revenues: U.S. $879.4 million) would indeed be a convenient way to solve the growing divergence of interests,” the report said. CheckFree has not been leery about opening its wallet lately to gain strategic assets. Last month, it said it would pay $206 million in cash for Carreker Corp., a banking-software firm that could extend CheckFree's presence in electronic check-image exchange (Digital Transactions News, Jan. 2). CheckFree expects to close on the Corillian deal by about June 1.