Reminiscent of dot-com buyouts of another era, Timonium-based Bill Me Later agreed yesterday to be sold to auction giant eBay for $945 million - amply rewarding its founders, investors and 300 employees for building the technology start-up into a major online payment provider in only eight years.
Bill Me Later is a smaller but significant rival to eBay's online purchasing system, PayPal. To buy its competitor, eBay will pay $820 million in cash to acquire the company's capital stock and warrants plus $125 million to assume Bill Me Later's outstanding employee stock options. The deal is expected to close by the end of the year.
"It's been an incredible ride," said Mark Lavelle, vice president of corporate development and strategic planning, and one of Bill Me Later's founders. "We had a dream of inventing a new payment method for helping customers and merchants. ... It makes us realize the dream to play on a global scale, impacting the largest and best player."
Bill Me Later's management, including Chief Executive Officer Gary Marino, will continue to run the company, which will become a business unit of PayPal. Its work force will remain intact, and the company's expansion plans in Hunt Valley and San Francisco will continue, Lavelle said.
Bill Me Later allows customers to pay later for items purchased at more than 1,000 online retailers, including Amazon.com and Walmart.com, without entering credit card information. Instead, the customer fills in his or her birth date and the last four digits of the Social Security number.
The company uses its proprietary underwriting system to approve each transaction, which takes about three seconds. It picks up the tab and is repaid by the shopper. If customers carry a balance at Bill Me Later, they incur interest charges.
"Bill Me Later is a fabulous business, but the opportunity that Bill Me Later and PayPal have together is nothing short of tremendous," Marino said yesterday in a conference call with analysts.
Ebay expects Bill Me Later to generate about $150 million in revenue next year. The company had about $90 million in sales last year and estimates $130 million this year.
John Donahoe, eBay's president and chief executive, characterized Bill Me Later as a "natural extension" to the auctioneer's businesses and a complement to PayPal, the industry's No. 1 online payment provider.
The two companies have little consumer overlap, Donahoe said. PayPal's customer base includes mostly small and midsize merchants and 63 million active users. Bill Me Later has attracted large retailers, including 75 of the top 200 brand names, and nearly 4 million consumers.
Combined, the two brands can more quickly acquire new merchants, offer consumers more payment options and lower PayPal's transaction costs, Donahoe said.
"This acquisition significantly strengthens our ability to lead online payment," he said. "Now we have the No. 1 and No. 2 online-oriented payment brands with highly complementary capabilities. Each offers unique benefits that customers want when they shop online, and each delivers merchants lower costs and incremental sales. That's a powerful combination."
Adil Moussa, an analyst with Aite Group LLC, a Boston financial services research and advisory firm, said eBay provides capital and other resources for Bill Me Later to pursue other opportunities, such as expanding its service to brick-and-mortar operations.
The acquisition will enable eBay to increase market share in the alternative-payment market. PayPal launched a Bill Me Later-like service in August that gives consumers a credit line without a credit card, but Moussa said it paled in comparison.
Still, some analysts questioned how the tightened credit environment would impact Bill Me Later's business.
Ebay said Bill Me Later's credit risk model and analysis have performed better than the consumer credit industry average. Donahoe said eBay was impressed with Bill Me Later's ability to maintain a "very strong discipline in their underwriting."
Marino said Bill Me Later has developed a model to better assess risk. "We think the model we developed does that with transaction-based credit, which gives you a chance to see every transaction to make a decision and substantially more data that we use in our underwriting decisions," he said.
Marino and other Bill Me Later founders have known one another since the early 1990s, when they worked for Citibank.
"They had a hope and a dream. Today they look back and they've done extremely well," said Steve Kozak, executive director of the Greater Baltimore Technology Council. "Gary is still running it, and they're in a tremendous hiring and growth mode. They may really ramp this up in the region."
Bill Me Later became one of the fastest-growing companies in the region, attracting venture capital and investors such as T. Rowe Price Group and Legg Mason Opportunity Trust mutual fund.
Amazon.com, which began offering the payment option in July, became the company's sole retail investor in December. An Amazon spokeswoman said the company cannot speculate on how the acquisition would affect Bill Me Later's availability on the site and declined to comment on whether it was interested in buying the company.
Bill Me Later was thought to be considering going public. Lavelle said the company was evaluating options and that eBay's deal was the best one at the right time. Both companies said the two sides had been talking for at least a year.
Bill Me Later's largest shareholder, San Francisco-based Azure Capital Partners, which invested in company in 2001, said it was thrilled by the acquisition.