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Intuit Solves a Big Conflict by Selling Its IFS Unit for $1B

JJ HornblassbyJJ Hornblass
July 1, 2013
in Banking, Risk & Security
Reading Time: 2 mins read
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There should not be one iota of surprise in the selling today by Intuit of its financial services software unit to Thoma Bravo for $1.025 billion in cash.

Intuit has been faced with a resounding conflict of interest for some time now. The deal for the remnants of Digital Insight, which Intuit acquired in 2006 for $1.35 billion, solves that conflict.

The conflict was straightforward: Intuit, mainly through its Mint product, was telling consumers which banks offer them the best deals, while selling software to the very banks which Intuit was, in some cases, steering customers away from. Additionally, Intuit was using bank data to effectively steer customers away from the very banks that were IFS customers. This was a classic B2C/B2B  conflict.

The result for Intuit is a below-par deal. Thoma Bravo is paying Intuit slightly less than 12 times FY2012 earnings for IFS, while Intuit paid about 37x for Digital Insight in 2006. By our rough reckoning, the multiple Intuit paid for DI was one of the highest ever in FinTech.

In selling IFS, Intuit is not just resolving the business conflict with banks; it is ridding itself of a recent laggard. IFS is growing at around a 6% annual pace, even as Intuit’s other remaining businesses are enjoying YOY growth rates in the mid-teens. IFS revenue hasn’t grown much in the years Intuit has owned the business (27% in total), despite the wholesale embrace of digital channels by many bank customers.

So why would Thoma Bravo buy IFS? Two reasons: Hyland Software Inc. and Entrust.

Entrust provides a whole suite of security software and security solutions. Not surprisingly, financial institutions represent a notable portion of the company’s customer base. Hyland is an enterprise software provider, and it, too, sells to FIs. Both companies are already owned by Thoma Bravo.

It seems likely that Thoma Bravo will combine Hyland and IFS to some degree, although the private equity firm has made no public indication that it would.

IFS’s origin, Digital Insight, was founded in 1995 and was in 1997, the first company to allow for the ordering of U.S. Savings Bonds online. By 2000, DI was a pioneer in delivering online statements and check imaging to its clients. But in 2013 that innovator was offloaded by Intuit, and that should tell you something.

 

Tags: Digital InsightIntuitMint
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