Intuit Offers $142 Million for ECHO To Cap Payments ‘Portal’

Intuit Inc. has notched yet another acquisition calculated to augment its widely used accounting software with electronic-payments capability by agreeing to pay $142 million in cash to buy Electronic Clearing House Inc. (ECHO), a publicly held, Camarillo, Calif.-based processor of card and automated clearing house transactions. The deal, which is subject to regulatory and shareholder approval, is expected to close in the first quarter and comes close on the heels of a $1.35 billion acquisition-agreement Intuit made with Digital Insight Corp., a provider of online-banking services, announced last month (Digital Transactions News, Nov. 30). In a statement, Intuit said ECHO will allow it to add check services, including ACH check conversion and check-verification processing, to the list of payment options it offers merchants and small-business clients, with which it has already built relationships through its popular QuickBooks product. The Mountain View, Calif.-based software house already processes card transactions through Innovative Merchant Solutions, a Calabasas, Calif.-based independent sales organization it acquired in September 2003 for $116 million. Intuit said it expected to be able to offer comprehensive electronic payment services to business users through what it calls a “single portal.” The company also expects the ECHO deal to expand its reach by adding new distribution channels and client relationships developed by ECHO. Founded in 1981, ECHO processes for more than 60,000 businesses and has been active in recruiting agent banks as resellers of its credit and debit card processing service. The company also employs 20 direct salespeople. It processed $1.78 billion in card transaction in the 12 months through Sept. 30, some three-quarters of which came from card-not-present merchants. It derives nearly one-fourth of its $75.3 million in annual revenue from ACH and check-verification services. In its fiscal 2006, ending Sept. 30, it processed 38 million ACH transactions, up 18% over the previous year, good for nearly $10 million in ACH processing revenue, up 19%. Much of its ACH business, however, comes from what it calls Internet wallet providers, companies that offer online users a means to pay for goods or services through prepaid accounts. ECHO processes the ACH transactions used to initially fund the accounts. Some of this business has been impaired by the Unlawful Internet Gambling Enforcement Act of 2006, passed by Congress at the end of September, which prohibits banks and networks from processing transactions for illicit gambling sites. In a filing with the Securities and Exchange Commission, ECHO says it saw a 30% drop in ACH transactions immediately after President Bush signed the measure into law in October and estimates it will cost the company $7 million in annual processing revenue if the Internet wallets cease funding online-gaming transactions. It says it expects to make up this loss through growth in other ACH markets. ECHO also provides check-verification services via a data base of 15 million negative-file and 127 million positive-file records. It leverages this data base as a third-party processor and acquiring processor for Visa USA's POS Check service, which allows merchants to verify demand-deposit balances for check transactions. With the acquisition, Intuit will also inherit a back-end transaction-processing system for bank card transactions that ECHO bought from Oasis Technologies, a unit of eFunds Corp., and expects to bring online this month. The processor has invested $4 million in the system, including a $1.6 million price tag and $2.4 million in internal development costs. ECHO, which earned $2.32 million in its fiscal 2006, was trading at $18.35 per share Friday morning, little changed from its Thursday close. Intuit's offer values the company at $18.75 per share.