CyberSource Gets Small

CyberSource (Nasdaq: CYBS  ) shares got a 5% haircut yesterday, on news of the company's $565 million acquisition of Authorize.Net (Nasdaq: ANET  ) . The deal might not be cheap, but it could help the company drive long-term growth.

CyberSource and Authorize.Net both develop systems that carry out e-commerce transactions. Combined, the companies would have generated 1.1 billion e-commerce transactions worth $65 billion in 2006.

According to the conference call, the deal should contribute $4 million to $6 million in cost savings. However, it seems like CyberSource is more interested in how the buyout will help to expand its footprint.

CyberSource focuses on midsize and enterprise customers, serving roughly 20,000 clients including Hewlett-Packard (NYSE: HPQ  ) and Home Depot (NYSE: HD  ) . Authorize.Net, meanwhile, focuses on small businesses, with more than 175,000 customers. It enjoys a key competitive advantage through its extensive relationship with about 2,500 resellers, which could provide a nice boost for CyberSource's BidPay.com online payment service.

Both companies sport healthy growth. For fiscal Q1, CyberSource increased revenue by 42% to $22.1 million, while Authorize.Net's revenue rose 21% to $16.3 million.

For some time now, CyberSource has wanted to attack the small-business market segment. Management always held off because of the considerable time it would take to gain a foothold there. Now, the Authorize.Net deal makes CyberSource a big player in small business almost immediately.

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 1,831 out of 30,414 rated investors in Motley Fool CAPS. Home Depot is an Inside Value pick. The Fool has a disclosure policy.


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