The Internet banking outsourcer Online Resources Corp. announced Monday that it is buying Princeton eCom Corp., the No. 3 provider of electronic billing and payment services, for $180 million in cash.
Matthew P. Lawlor, Online Resources' chairman and chief executive, said his company, which is based in Chantilly, Va., expects to save on costs and to drive consumer adoption of online bill payment by combining its consumer-facing systems with Princeton eCom's remittance capabilities.
Acquiring the New Jersey company would allow Online Resources "to leapfrog years of organic business development," Mr. Lawlor said.
He said the Virginia office would manage bank and consumer relationships, with the New Jersey organization focusing on billers. "The heart of Online Resources is still in the midsize and small financial institution market," he emphasized.
Mr. Lawlor acknowledged that the privately owned Princeton eCom had struggled financially, but "particularly in the last three years, their business has really taken off," he said.
Catherine A. Graham, an executive vice president at Online Resources and its chief financial officer, said that the sale would probably reduce Online Resources' second-half profits by 7 cents to 10 cents a share but that it would contribute to earnings in the 12 months after it closes. She said the company would provide earnings guidance in more detail after the closing. It expects the deal to close July 15.
Princeton eCom had a number of suitors, Mr. Lawlor said, though he would not give any behind-the-scenes details. "It was an intense competition, and we won it," he said. As a result, Online Resources is paying what Mr. Lawlor called "full value" for Princeton.
Online Resources is putting up only $20 million of its own cash to finance the deal. A private equity firm, Tennenbaum Capital Partners LLC, of Santa Monica, Calif., has agreed to provide $85 million of debt to finance the deal and will pay $75 million for convertible preferred stock; that would make it Online Resources' largest shareholder, with 14% of the stock.
Beth Robertson, a senior analyst at MasterCard International's market research unit, TowerGroup in Needham, Mass., said that after buying Princeton eCom, Online Resources would have enough biller relationships and banking customers to challenge Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., for the No. 2 position in online payments. (CheckFree Corp. of Atlanta is the No. 1 provider.)
"Metavante hasn't made a lot of investments in their online bill payment in the last couple of years," Ms. Robertson said. "They've been focused on making deals in the other parts of their business."
But James Van Dyke, the principal and founder of Javelin Strategy and Research in Pleasanton, Calif., a payments specialist, compared the deal to Chrysler Corp.'s 1987 acquisition of American Motors, when both automakers were struggling against larger rivals.
Mr. Van Dyke said it is imperative that Mr. Lawlor's team develop breakthrough features, such as real-time information that is available on biller-direct sites, combined with real-time payment capabilities, all manageable with easy-to-use controls.
"None of that exists today," he said. "It's hard work to straighten out these pieces of spaghetti and connect them all together."
