At first, the merger of Jack Henry, a large, entrenched core banking software provider, with Banno, a young, energetic and fast-moving Silicon Prairie digital banking startup, felt faintly disappointing. Was former coder and entrepreneur Wade Arnold, the mastermind behind highly regarded Banno it was one of American Banker's Top 10 Tech Companies to Watch in 2012) giving up? As with BBVA Compass' planned acquisition of Simple, it looked to be yet another example of an entrepreneurial startup realizing it can't make it on its own and selling out to a deep-pocketed rival.
But conversations with the principals just after the deal closed Tuesday brought out a backstory and logic that show that both parties have much to contribute and gain from the merger. (Financial details of the deal will not be disclosed until June, when Jack Henry's next annual report comes out.)
There's a geographical closeness Jack Henry's Monnett, Mo., headquarters is less than 500 miles from Banno's in Cedar Falls, Iowa. The two companies also have been working together for more than a year; Jack Henry's ProfitStars division has been reselling Banno's Grip mobile banking software to its non-core-banking-software customers.
Perhaps most importantly, Jack Henry values Banno's ability to innovate, a skill that is crucial to any company creating financial technology for a population that demands services be available on their mobile device, and competing with consumer brands that have paid close attention to design for years, like Apple and Google.
Dave Foss, the president of ProfitStars, promises that Jack Henry will preserve Banno's culture.
"We've spent time focusing on not breaking what they have there that's really unique," Foss says. "We're serious about keeping that style and approach in place."
Banno gives Jack Henry a mobile banking platform that rivals Simple, as well as a successful website design and hosting business that fit with the larger company's traditional products. "With the other Banno products and services, Jack Henry's legacy NetTeller services and ProfitStars assets, the combined companies have the potential to be a leading force in digital retail banking," says David Gerbino, a bank-focused digital and database marketing consultant.
Much hinges on how well Jack Henry can remove or upgrade its legacy technology with the superior Banno technology, he says. "If the new company can get rapid adoption of Banno's kernel technology, they will have something special that can differentiate their clients from the competition," he says.
Arnold says this acquisition is a chance for him to focus on what he cares about most: innovation.
"We have three salespeople; they've got more salespeople than we have employees," he explains. "We have a great story when it comes to the technology we provide, but the overarching business of sales, channel management, marketing, and the balance sheet of a larger institution are all things that have kept Banno from being able to grow and fulfill the vision I set out to have. That vision has a better chance at being fulfilled at Jack Henry."
Meanwhile, although Jack Henry will rebrand Banno as Profitstars and move it into a new building in Cedar Falls, Foss hopes to preserve the energy at the startup, where there are no offices but employees are given all the free Red Bull they can drink.
Arnold is confident that his group will be encouraged to keep innovating.
"Innovation isn't necessarily a size-of-company thing Google has 46,000 employees and somehow they pull off being the coolest company on the planet," he points out. "They also have the resources and infrastructure to deliver on some of the world's best products. What I'm seeking in our acquisition with Jack Henry is to leverage that infrastructure they already have to make our products better."
He's been promised that if he's asked to change anything that interferes with innovating, he has the right to call as high up as he needs to.