Digital River Expanding Customer Base Through Acquisitions

E-commerce hosting company Digital River Inc. is using an acquisition strategy to expand its customer base and technology.

The Eden Prairie, Minn., company has bought two companies since it began the strategy late last year: E-business service provider Orbit Commerce, Inc., which gives Digital River entr?e into the small to medium-sized business market, and Regsoft.com Inc., an E-commerce service provider for software publishers and vendors. Orbit Commerce was bought for nearly $5 million in cash and stock. The deal closed a couple weeks ago. The Regsoft.com acquisition, which was worth $750,000 in cash and a note for $2.5 million that is payable in full on Feb. 2, 2002, closed in August.

Buying dead or dying E-commerce companies is a good strategy for Digital River to expand its customer base, add to its technology portfolio, and establish international reach, says Jeetil Patel, Deutsche Banc Alex. Brown senior analyst. "There are a lot of Internet companies that are going out of business or are nearing the end of their life span," Patel says. "Digital River steps in and buys companies cheaply, and those that are synergistic with its existing business and can be done on an accretive basis."

Digital River will gain 5,000 new customers from both deals. Digital River CEO Joel Ronning says it helps new customers transition to its E-commerce hosting strategy and technology by writing applications for the customers and offering them features that weren't available from their former service provider. Within Digital River, Ronning transitions acquired companies by consolidation.

"Generally, the servers are brought to Minnesota and IT is consolidated in Minnesota," he says. "There's no sense in having eight different data centers in eight different locations. Network traffic is centralized here and accounting and administration is done inside Digital River."

Digital River plans to maintain Orbit's Chicago office and retain about 15 Orbit employees to provide client services, project management, and technical support. RegSoft.com will continue operations as a separate entity.