The Internet company known best for its Dogpile metasearch site is digging into its big pile of cash to buy TaxACT, the Cedar Rapids-based online tax software company.
InfoSpace Inc. of Bellevue, Wash., announced a definitive agreement Monday to buy TaxACT for the same $287.5 million cash price offered by H & R Block. It took swift advantage of the November 2011 court ruling blocking H & R Block's acquisition of 2nd Story Software -- TaxACT's operating company -- because the deal announced in late 2010 would have eliminated too much of the competition remaining in the tax software market..
It's a new direction for InfoSpace, the company's new CEO, Bill Ruckelshaus said in a telephone interview Monday. He said the company isn't looking to inject TaxACT into its online search business or vice versa. Rather, he said, InfoSpace wanted to find a new "growth platform" that would boost shareholder value with some of the $254 million in cash it was sitting on at the end of its last fiscal year from selling business units in 2008.
TaxACT employs about 70, most of them at its 2nd Story Software offices in northeast Cedar Rapids. The company served more than 5 million tax filers in the 2010 tax filing years, and generated $78.1 million in in the 12 months ending Sept. 11. It had adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $37.8 million for the 12 months.
InfoSpace employs about 130, most of them in the Seattle suburb of Bellevue, Wash. The company had net income of $13.7 million for its 2010 fiscal year. The company returned to profitability in fiscal 2009 after losing money in fiscal 2007 and fiscal 2008.
Ruckelshaus said the similarity between the two companies is that both have the Internet "in their DNA." TaxACT pioneered online tax software services through a secure online delivery system. A big lure for many customers, in addition to the online access, was free basic filing software. The software gives many customers their first experience with TaxACT, and many of them later opt for more enhanced versions that it sells.
It's a business InfoSpace had never even dabbled in before making the deal.
""We're not in that business," Ruckelshaus said. "It's a business TaxACT has been in and grown successfully."
Ruckelshaus said InfoSpace is expecting most of the TaxACT management team to stay in place, with the possible exception of some founders who might see the pay day as an opportunity to pursue other plans. TA Associates, the majority shareholder in TaxACT, plans to sell all its holdings.
As a publicly traded company, Ruckelshaus said InfoSpace could offer insiders stock options as an incentive to stay and grow the business.
TaxACT President JoAnn Kintzel, in prepared remarks, said that "With the support of InfoSpace, we are confident that we can further strengthen our position and capitalize on the substantial opportunities in the market for online tax preparation."
Kintzel said TaxACT has the right tools, tremendous in-house expertise and an established consumer following.
InfoSpace expects the acquisition to provide an immediate boost to its earnings.
TaxACT has offered free online filing options for more than a decade. The company was founded in Marion by four members of a team that developed and marketed Parsons Technology's Personal Tax Edge Software before Parsons, a Cedar Rapids-based software company, was sold by founder Bob Parsons to Intuit, the maker of TurboTax.
InfoSpace was founded in 1996 by former Microsoft executive Naveen Jain. While it has ventured into a variety of web-based businesses through acquisitions, its core businesses include metasearch sites that aggregate search findings from major search engines and private-label search sites for businesses and consumers.
InfoSpace will use a combination of debt and cash to make the acquisition. The deal is expected to close before the end of March.