Internet banking services provider Digital Insight (Nasdaq: DGIN) announced yesterday that it is purchasing rival nFront (Nasdaq: NFNT) in a stock-for-stock exchange.
When the acquisition was announced, the value of the deal was about $439 million (US$), which represented a 55 percent premium over nFront’s value after the markets closed on Friday. The deal, however, became worth significantly less by the end of trading on Monday because Digital Insight stock fell hard after the acquisition was announced.
The deal is expected to close in the first quarter of 2000. At that point, Digital Insight will have 645 financial institution clients with approximately 16 million potential users, of which more than 640,000 are already using Internet banking services. Digital Insight services small-to-midsize banks, savings and loans, and credit unions.
In addition to banking services, Digital Insight offers Web site development, hosting and maintenance for its customers.
“The merger brings long-needed consolidation to a fragmented market and will allow us to take advantage of compelling economies of scale,” said John Dorman, CEO of Digital Insight. “In addition, our combined companies have interfaces with every major financial data processing vendor. In total, our core processors’ customer bases represent over 80 percent of our target market institutions.”
Both Operations Will Remain Intact
The combined entity will operate under the Digital Insight brand and be headquartered in Calabasas, California, but nFront’s operations in Atlanta, Georgia will remain intact. Tripp Rackley, chairman and CEO of nFront, will become president of Digital Insight.
“The merger better positions us to enable our clients to leverage the Internet as a full-service sales and delivery channel,” Rackley said. “In effect, we will be offering the opportunity for a community financial institution to operate as a vertical financial services portal.”
Shares of nFront gained 12 percent after the news was announced on Monday, rising 2-1/4 to 21. Meanwhile, shares of Digital Insight tumbled more than 20 percent, falling 10-3/16 to 39-5/16.
Digital Insight, which went public at $15 a share less than two months ago, had been trading near its all-time high before the deal was announced. Part of Monday’s sell off might have been due to the fact that Digital Island stock has been on a strong run and investors decided to take some profits on the news.