Intuit Boosts West Valley Presence With Acquisition

In a move that will greatly expand its presence in the San Fernando Valley, Intuit Inc., makers of TurboTax, has acquired online banking software company Digital Insight Corp. for $1.35 billion in cash. The acquisition is the second for Mountain View-based Intuit since last year when it bought MyCorporation.com, an online provider of business forms and services in Calabasas. Intuit has plans to relocate its now considerable West Valley businesses to LNR Warner Center in Woodland Hills next year, although it is not known whether Digital Insight would now be included in that move. The companies hope that the acquisition will accelerate the use of online banking within the small business community by combining Intuit’s expertise in that sector with Digital Insight’s penetration with its bank customers. The cash deal, which will be financed mostly with debt, is subject to regulatory and shareholder approval. It is expected to close in the first quarter of next year. Intuit, with revenues of more than $2 billion, is the No. 7-ranked software company providing financial management software and tax preparation tools including QuickBooks, Quicken and TurboTax to individuals and small businesses. Digital Insight has been rapidly adding financial institutions to its client list, but in the highly-fragmented industry where it operates the name of the game is end users, and significant penetration into the small business community would go a long way toward helping in that effort. “Online banking is growing rapidly, but today’s solutions don’t meet the needs of most small businesses and many consumers,” said Jeff Stiefler, Digital Insight’s chairman, president and CEO in announcing the agreement. Digital Insight, which the companies said would remain in the local area, will be structured into a new financial institutions business division within Intuit, and Stiefler will serve as the president of the unit when the deal is completed. The companies see an opportunity to combine their different areas of software expertise and distribution into a package that will help foster the adoption of online banking, bill paying and other financial transactions by both consumers and small businesses. At the same time, the combination of products can make the company more attractive to financial institutions, which have a number of choices for online banking product and services providers. At presstime, officials at the companies were not available to comment beyond the statements made in a conference call that was held on Thurs. Nov. 30. Intuit’s presence in the West San Fernando Valley has been growing steadily since the company’s Innovative Merchant Solutions (Intuit IMS) unit was located in Calabasas. With the addition of Digital Insight, which had sales of $214 million last year, Intuit’s West Valley operations will be among the company’s largest. Intuit and Digital Insight have been working together on what the company believes will be the killer app for a market of about 22 small businesses the company’s earmarked. “We believe that if we do nothing more than drive higher adoption of online banking and bill pay usage within our base of existing financial institution clients, we will have an exciting growth business,” said Steve Bennett, Intuit’s President and CEO in a conference call. Digital Insight products are currently offered through 1,760 financial institutions, but just 7 million of those banks’ 38 million customers, 19 percent, use online banking services and 1.7 million of those end users, 5 percent, pay their bills online. “The synergies in this transaction are all about growth,” said Kiran Patel, Intuit’s CFO in the conference call. “We believe they will come in several forms: more financial institutions selecting Digital Insight offerings; higher adoption of online banking from existing financial institution clients and higher cross-sell of existing Intuit offerings through the Digital Insight platform.” For the third quarter ended Sept. 30, Digital Insight reported a net loss of $25 million or $09.76 per share and revenues of $62 million. The results compared with net income of $6.8 million or $0.19 per share on sales of $53.2 million for the comparable period in 2005. Intuit reported a net loss of $58.9 million or $0.17 per share in its first fiscal 2007 quarter reported in November compared to a loss of $45.8 million or $0.13 per share in the comparable period a year ago. Revenues for the period increased 19 percent to $362.1 million. Intuit said that it typically posts a loss in its first quarter because its business is heavily tied to tax season.