Continuing a trend in which vendors are bulking up to meet snowballing demand for Internet banking systems, S1 Corp. has agreed to buy fellow banking software provider Q-Up Systems Inc.

Atlanta-based S1, which caters to large banks, said it would buy Q-Up with 2.4 million shares of its stock, which closed at $105 Friday, down 11% for the week. With the addition of 1.4 million options that it would issue in exchange for options held by Q-Up employees, the deal would be worth about $436 million.

The deal was announced last week and is expected to close in the second quarter.

Privately held Q-Up, which markets to banks with less than $10 billion of assets, would get much-needed marketing, research, and development resources through S1.

"It has a lot to do with growing the business, getting the land-grab, and growing the marketplace as fast as you can," said Dan Martin, president of Austin, Tex.-based Q-Up. "There is a phenomenal amount of opportunity."

Mr. Martin said that as few as 10% of the nation's financial institutions have bought Internet banking software, but he predicted that 40% will buy such systems in the next two years.

Q-Up, a five-year-old company with 120 employees and 350 clients, has been averaging about 25 sales a month. That is "an awful lot of work load," Mr. Martin said. "You put 8,000 banks into the mix, it starts to become a long workday."

Q-Up had $7.8 million of 1999 revenue after tallying $1.6 million the previous year. Net income before taxes was $1.5 million, up from $300,000.

S1's 2000 budget earmarks $60 million to research and development. That amount is greater than the combined annual revenues of Q-Up and its competitors, Digital Insight and Online Resources & Communications.

Mr. Martin said his company has spent less than $200,000 on marketing in the last three years. As a subsidiary of S1, it could spend 20 times that amount a year.

"We will now take on as much business as we think handle," he said. "We now have all the resources in the world to do so."

S1, whose stock has appreciated about 320% in one year's time, said Q-Up rounds out its offerings. The tremendous boost in S1's market valuation has helped, creating a valuable currency enjoyed by few companies in any industry.

Chuck Ogilvie, general manager at S1, strongly hinted that his company has more acquisitions forthcoming.

"We have to make sure that we continue grow outside the U.S., in Europe and in Asia," he said. "Both of those are hotbeds right now, and we have, a currency that we want to use."

Rob Martin, an analyst with Friedman Billings Ramsey & Co., agreed that market conditions are conducive to additional S1 deals "as long as they have the currency to spend and spend it on the right acquisitions."

"People are not going to judge it on the price but rather as to whether it makes sense," said the analyst, who has reiterated his "buy" rating of S1 stock and given it a target price of $140 a share.

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