eFunds: Sold For $1.8 Billion to Fidelity National

Implications: In a second round of bidding eFunds rival Fidelity National usurped Fiserv's bid of $1.5 billion to come out on top and will acquire eFunds for $1.8 billion. After eFunds reported 1Q07 earnings reflecting a decline in revenue by 4% to $134 million and a slight dip in net income of 1.4% to $10.5 million from $10.7 million, eFunds Board assembled a 'Review Committee" to consider its strategic direction. eFunds suffered losses from a contract rolloff with Bank of America and a highly disputed contract termination with MasterCard that has led to litigation. The sale of eFunds is the third financial data processor to change hands this year as the payments processing industry is trending towards consolidation. Notable buyouts and spin-offs include KKR's buyout of First Data, Morgan Stanley saying farewell to Discover and M&I preparing to spin-off Metavante. Fidelity National who split from its parent last year, will use eFunds to cut expenses and bolster its debit card business.

Analysis: Comments/Perspective:

After eFunds "Review Committee" explored all of eFunds options to determine 1. should eFunds remain an independent company? 2. should eFunds merge with a strategic partner? or 3. accept a buyout by a private equity firm who could provide the capital to expand its infrastructure capacity and global expansion, eFunds opted for "Door #2" for $1.8 billion with its rival, Fidelity National.  Fidelity National's parent Fidelity National Financial Inc., provides title insurance which protects homebuyers from claims against their ownership of a property and most banks require this type of insurance before issuing a mortgage, which is why Fidelity National's software is so popular with mortgage processors.

1. Companies like eFunds may be misunderstood by the market because they may be going through slow organic growth, however, they have the ability to generate free cash flow. eFunds stock soared after announcing in May 2007 that it would explore possible strategic alternatives

2.  The bidding for eFunds drew bids from at least four suitors, however, Fiserv and Fidelity National 's bids were equal at $1.5 billion and in a second round of bidding Fidelity National won out with a bid of $1.8 billion bid