ORC Chief Says Princeton eCom Play Will Help Build Scale

The deal may be expensive, but Online Resources Corp. expects its definitive agreement to buy bill-payment provider Princeton eCom Corp. to position the combined firm for future growth as electronic bill payments gain favor with consumers and companies. Chantilly, Va.-based Online Resources announced the $180 million cash deal this week after winning a bidding process that involved about a half-dozen finalists. Online Resources is paying about 4.6 times Princeton eCom's projected 2006 revenues of $39 million. Privately held Princeton eCom's current owners stand to gain another $10 million if the company meets certain financial targets. “It's a full price, no question about it,” Online Resources chairman and chief executive Matthew P. Lawlor tells Digital Transactions News. “Heated competition.” The multiple, however, was close to those in some other recent sector deals, according to Lawlor. And Wall Street apparently gave its thumbs up as Online Resources' stock closed up nearly 4% on Monday, the day the deal was announced. In return, Online Resources will get more scale and Princeton, N.J.-based Princeton eCom's experienced staff. Combined, the two companies expect to process more than 200 million transactions worth $75 billion in bill payments over the next year. They'll be serving 2,200 financial institutions and 1,600 billers?more clients than any other bill-payment processor, Online Resources claims. Both firms have what they call consumer-service-provider, or CSP, platforms that become more economical with each additional revenue-generating transaction to offset their fixed costs. “We want to take their [Princeton eCom's] CSP volume and overlay it on our CSP and get more scale,” says Lawlor. In addition, Princeton e-Com will bring to Online Resources a strong client base and experience in the so-called biller-service-provider, or BSP, market of Web-based services for payment acquirers and billers. “We wanted to be on the biller side of the business,” says Lawlor. “There are network benefits available being on both sides of the transaction.” Princeton eCom chief executive Ronald W. Averett will head the combined companies' e-commerce businesses. Lawlor adds that the merged company will be better armed to go after the high-growth parts of bill payment, including last-minute payments that generate consumer fees, and PIN-less debit. Online Resources will fund the purchase with its own cash on hand and financing from Santa Monica, Calif.-based private-equity firm Tennenbaum Capital Partners LLC. As part of the deal, Tennenbaum will hold the equivalent of 4.6 million common shares of Online Resources, a 14% stake, and get a seat on the firm's board of directors. Online Resources reported $60.5 million in revenues last year and $13.9 million in earnings before interest, income taxes and amortization (EBITA). Privately held Princeton eCom recently crossed into EBITA profitability, Lawlor says, with a margin of 12%. The parties expect to close the deal by July 15.