Electronic payment vendor CyberSource is buying fellow e-payment player Authorize.Net for $565 million in cash and stock, the companies announced June 18.
Steve Rowen, a research analyst at Retail System Research, said the merger of these two players is not in itself surprising, but the size of the deal reveals a lot about retail interests.
“CyberSource acquiring Authorize.Net is a highly logical move. Is it an industry-changing deal? Not at all,” Rowen said, but added that a deeper look at the metrics behind data theft suggests other significance to this $565 million deal.
“To a data criminal, a personal account number has a street value of $3. By way of comparison, the full track data from a credit card swipe at a card-present merchant yields anywhere from $35 to $50. As a result, e-commerce retailers are not as attractive to thieves as those who operate physical stores,” Rowen said. “So what this deal—assuming it wants to be profitable at this price tag—really shows us is how seriously the online retail community has taken the responsibility and the prioritization of secure payment and authorization. If only card-present merchants were so demanding.”
The companies in their announcement positioned themselves as focusing on non-overlapping market segments rather than competing.
CyberSource, based in Mountain View, Calif., with about 20,000 customers, has traditionally focused on managing payments for midsized and enterprise customers, while Authorize.Net, based in American Fork, Utah, “with more than 175,000 customers, has specialized in small businesses,” the two companies said in a joint statement.
The pair reportedly processed about 1.1 billion transactions in 2006, in what the companies said represented “$65 billion of e-commerce.”
Under the agreement, Authorize.Net shareholders will receive 1.1611 shares of CyberSource common stock for every share of Authorize.Net common stock. Additionally, shareholders will receive a pro rata share of about $125 million in the form of a cash payment.
Retail Center Editor Evan Schuman can be reached at [email protected].