Online Resources’ $45 Million ITS Deal Beefs up Its Biller Business

In a deal that will expand its client base of billers by 50%, Online Resources Corp. on Thursday announced it is buying Internet Transaction Solutions Inc. for $45 million in cash and stock. The Chantilly, Va.-based bill-payment processor says ITS, which processes payments for some of the country's largest collections agencies and utility companies, serves a complementary client base that will provide a ready market for key Online Resources products, such as PIN-less debit and a Web-based collections service. In a conference call to discuss its second-quarter results as well as the ITS acquisition, Online Resources chief executive Matthew P. Lawlor said the deal fits into a strategy for aggressive growth for the company's e-commerce division, which processes payments for billers. “We believe there's an excellent opportunity for [us] to grow in the highly fragmented biller-service market,” he told analysts and investors on the call. Online Resources' plan is to build the division's revenue to $100 million within three to five years. The company as a whole expects revenue of between $135 million and $138 million in 2007. The deal for ITS, whose headquarters are in Columbus, Ohio, follows Online Resources' $180 million acquisition last year of Princeton eCom Corp., a deal that allowed Online Resources to enter the biller-service market. Largely as a result of that move, the company processed 7.7 million biller payments in the second quarter, up from zero a year ago, for 295 clients. ITS processes 5 million payments annually for some 150 clients, including 12 of the 20 largest receivables-management firms and major utilties like Allegheny Power and Nashville Electric Service. About 60% of ITS's clients are in collections, with the balance utilities. Lawlor said deals of the scale of the ITS acquisition are not a financial stretch for the company in pursuit of its goals for biller-direct processing. “We felt we had the resources to do a few reasonably priced tuck-in acquisitions,” he told listeners on the conference call. ITS, Lawlor said, is “very good at convenience payments,” the last-minute transactions consumers make online to avoid service cut-offs. With that backdrop, he sees ITS's clients as strong potential users of Online Resource's PIN-less debit product, which allows consumers to make payments online with PIN debit cards but without entering their PINs. Utilities are among a select number of categories in which such payments are permitted by the electronic funds transfer networks. The additional biller connections should also enhance an expedited-payments service Online Resources began piloting earlier this year. Expedited payments, which allow consumers to get almost immediate account updates, rely on the direct links to billers. Online Resources expects to launch the service commercially next March, Raymond T. Crosier, president and chief operating officer, said during the call. Online Resources expects to close the ITS deal within 30 days. Upon closing, it plans to fold the company into the e-commerce division, which is headed by executive vice president Bob Craig. Overall, Online Resources reported it processed 49.8 million transactions in the quarter for banks and billers, up from 14.2 million in the year-ago period, before the Princeton eCom integration. It served 10.5 million users, up from 3.4 million.