Stock market investors this morning gave Internet payment service CyberCash (CYCH) a tepid reaction to yesterday's announcement of a deal to acquire ICVerify, a seller of PC-based cash registers for the physical world and payment software for Internet merchants, for $57 million in cash and stock.
After climbing nearly two points yesterday, CyberCash's stock this morning traded at 17-3/4, off 1/8. Based on yesterday's closing price, the 2.3 million CyberCash shares in the acquisition were worth $41.1 million. CyberCash also paid $16 million in cash for ICVerify.
"We've been talking about the virtual and physical worlds converging, and we need things that address that convergence," said George Hoyem, vice president/general manager of VeriFone's Internet commerce unit.
CyberCash still lacks global reach in its business, Hoyem contended, adding that VeriFone explicitly decided not to pursue PC-based systems for processing credit card transactions--ICVerify's specialty--because its popular countertop devices are cheaper than PCs.
The CyberCash deal is expected to close in early May, and ICVerify will become a wholly owned subsidiary of CyberCash as a result.
ICVerify, which sells its software mostly to mail- and phone-order operations, last month shipped its first Internet payment software, and now claims to have 250,000 locations using its software..
Paul Merenbloom, an analyst with Prudential Securities, said the merger is a great move that more than doubles CyberCash's presence.
The deal "is all upside," he said, pointing out that neither company is profitable but that both are young and growing quickly in a booming market. "If they had not done this merger, they probably would have been competitors eventually."
One of the first Internet companies to go public, CyberCash specializes in support services for Internet payments. It handles primarily credit card payments and has an electronic cash product and electronic checks. It also is moving into "bill presentment," a service that lets utility customers view and pay their monthly bills online.
"ICVerify has 250,000 merchants, and one of the problems for CyberCash has been getting merchants," said Magdalena Yesil, a CyberCash cofounder who now works for U.S. Venture Partners, one of ICVerify's venture investors.
"CyberCash has been making serious strategic changes to migrate into the mainstream, away from being a niche, marginal processor of electronic cash payments," said Scott Smith, e-commerce analyst at Current Analysis. "In purchasing ICVerify, they're taking a step toward doing that."
With the acquisition, CyberCash gets access to sell its Internet service to ICVerify merchants. ICVerify, new to the Net, in turn gets CyberCash's well-known brand name and its ability to raise capital.
"ICVerify has 250,000 merchants, and one of the problems for CyberCash has been getting merchants," said Magdalena Yesil, a CyberCash cofounder who now works for U.S. Venture Partners, one of ICVerify's investors.
The acquisition was not a complete surprise. After CyberCash raised $15 million in cash last month, the company told analysts that it was earmarking the capital for acquisitions, not to subsidize continuing losses.
The two companies share a common competitor in VeriFone, which has dominant market share in the counter-top devices for processing credit card transactions. Two years ago it also began a push into the Internet payments business.
In fact, the combination of CyberCash and ICVerify largely replicates VeriFone's current business, combining Internet and standard merchant payments in a single company. That should come as little surprise to CyberCash CEO Bill Melton, who founded VeriFone, or to ICVerify CEO Tom Aden, who worked at VeriFone in its early years.