June 18, 2007, 12:00 AM

CyberSource acquires Authorize.net in merger of online payment processors

CyberSource will pay $565 million in cash and stock. CyberSource handles payments for mostly midsized and larger retailers, while Authorize.net’s customers are primarily smaller merchants.

CyberSource Corp. is acquiring Authorize.net in a combination of payment processors that target different segments of online retailers. CyberSource provides payment processing and risk-management services to midsized and larger retailers, while the 175,000 clients of Authorize.net are mostly smaller merchants.

“This is an investment in growth and scale,” says Bill McKiernan, CyberSource chairman and CEO. “Each company has a strong brand, processing platform and team.”

CyberSource will pay approximately $125 million in cash and the balance of the $565 million purchase price in stock. The deal is expected to close in late September or early October.

“This deal makes a ton of sense,” says Allen Weinberg of consulting firm Glenbrook Partners. “CyberSource has worked one side of the market, the big guys, while A-net worked the small guys.” He says the combined company figures to go head-to-head more often with the payments service of PayPal for the business of mid-level online merchants.

Weinberg says smaller merchants will benefit from the deal because they will gain access to the sophisticated antifraud tools CyberSource provides to larger merchants today. “CyberSource is best in class, it’s what they’re known for,” he says. “The little guys don’t have the in-house capabilities to adequately protect themselves.”

CyberSource’s online retail clients include CompUSA, No. 42 in the Internet Retailer Top 500 Guide; Home Depot, No. 37 in the Internet Retailer Top 500 Guide;, Nike.com, No. 77 in the Internet Retailer Top 500 Guide, and Overstock.com, No. 25 in the Internet Retailer Top 500 Guide. The company, based in Mountain View, CA, reported revenue of $70.3 million in 2006, up 39% from $50.5 million the year before. Together, CyberSource and Authorize.net processed 1.1 billion online transactions in 2006 worth $65 billion.

McKiernan will remain chairman and CEO of CyberSource. Scott Cruickshank will remain president and chief operating officer of CyberSource and Roy Banks will stay on as president of Authorize.net. Upon the close of the deal, Robert Donahue, currently a member of the board of Authorize.Net Holdings Inc., will join the CyberSource board and Cruickshank will give up his board seat.

 

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