The acquisition kind of feels like it comes from left field: the companies do not have any over-lapping businesses, and there will be few obvious cost synergies. And it is not coming cheaply: Bryan Keane, an analyst with Prudential, says that at 30 times 2007 per-share profits and 15 times estimate 2007 EBITDA, Intuit is paying “a high premium.” Keane says the acquisition will be 2-3 cents dilutive to non-GAAP EPS in the July 2007 fiscal year, but slightly accretive in 2008.
“We are surprised to hear today’s announcement since we don’t see many synergies between the businesses,” Keane wrote. “If this deal works, INTU will drive a different growth engine for the company through financial institutions. DGIN relies on many third party relationships to drive its revenues and profits and it will be essential for INTU to retain these agreements.” Keane continue to have an Underperform rating on the stock.
FBR’s Chris Penny, who follows Digital Insight, says the high price “reflects how strategic Intuit see Digital Insight.” He also says that the acquisition makes perfect sense for Digital Insight, “as we always believed that the reselling strategy DGIN pursued was going to run out of gas at some point.”