This week, financial services software company Envestnet agreed to buy data aggregator and technology company Yodlee for nearly $590 million. The deal, announced Monday, represented a 50% premium on Yodlee’s market value, reflecting the buyer’s eagerness to seal the deal.
Why did Yodlee sell?
Yodlee CEO Anil Arora said that Yodlee (YDLE), which helps banking institutions and online financial managers compile consumer financial data, had a strategic fit with Envestnet (ENV), which provides software to wealth managers.
Arora explained that one of the fastest-growing client segments of customers using Yodlee is wealth management. Financial advisors want to help clients pull together their credit card statements, bank accounts, and investment portfolios in one place.
The other part of Yodlee’s business is selling data. The company recently came under fire for how much consumer transaction data it shares with financial institutions. A Wall Street Journal report asserts that Yodlee sells anonymous data it gathers from credit card and debit transactions to investors and research firms. But in some cases of anonymized data unrelated to Yodlee’s data, those firms can figure out whose data they’re looking at, the report said, pointing to a study from MIT.
Yodlee has denied this, saying that the data passed on to banks for research is scrubbed of any personally identifiable information and can’t be walked back to a person’s identity. Nevertheless, this data-selling part of Yodlee’s business has been quietly operating for at least a year, Coins2Day has learned.
The reality for Yodlee is that while revenue has been growing — $24 million in the first quarter compared with $19.7 million in the same period last year, for example — the company has lost money ever since it went public in October 2014. In the first quarter, the company lost $2.9 million.
Investors initially frowned on the transaction. Envestnet’s shares plummeted 30% to $31.67 on Tuesday. Envestnet’s CEO Jud Bergman attributed the drop to the company not clearly communicating the strategic benefit of acquiring Yodlee. Envestnet’s stock rose 25% Wednesday, to $36.64 per share. “We’re in the middle of a large transformation in ‘fin tech’ and how financial advisors onboard, analyze and invest using technology,” said Bergman. “In this transformation, Yodlee and Envestnet have a shared vision and compatibility,” he said.
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