Seeking Alpha
Profile| Send Message|
( followers)  
Companies merge for a wide range of reasons, but the most cited one is synergy. The American Heritage Dictionary defines synergy as "cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a corporation, that creates an enhanced combined effect." If we were to write a term paper on the subject, we'd have to talk about Sallie Mae.

Last week, Sallie Mae (NASDAQ:SLM), the largest student loan lender in the United States, snapped up Upromise, the largest administrator of direct-to-consumer 529 college savings plans, for an undisclosed sum.

Upromise, which also administers a rewards program that provides cash rebates toward college savings on consumers' everyday purchases at places like supermarkets and gas stations, gathered a cool $10B in assets, 1M savings plans, and 7 million customers in just five years -- an amazing feat by all means. The deal should enable Sallie to more directly attack the consumer by complementing its student loan operations with UPromise's widely marketed savings platform.

The decision to buy UPromise stemmed from the acquirer's desire to offer customers an integrated, augmented value proposition: the deal will enable Sallie Mae to help parents/students borrow and save money for college without them having to go to 2 different providers, effectively saving consumers both time and money. As far as we're concerned, this deal's a layup and we pity the fools who didn't think of eating Upromise earlier.

In short, the leading finance company in the US will now have a true competitive advantage over stand alone loan providers. As Tim Fitzpatrick, Sallie Mae's CEO stated: "We are truly excited about this new acquisition. The opportunities to expand college savings through our customer relationships are extraordinary. In partnering with Upromise, we will be able to help families get a jumpstart on saving for college." Tom Anderson, Upromise's CEO, was equally ecstatic: "...it will also allow Upromise to extend our relationship with families through college and beyond. Sallie Mae's work with 6,000 colleges and universities, as well as America's leading scholarship organizations, creates partnership opportunities that Upromise could never achieve on its own."

Source: SallieMae and Upromise: Synergy Defined (SLM)