Under the terms of the transaction, FIS will pay $36.50 for each eFunds share, representing a 5.5% premium to yesterday’s closing price of $34.60. The announcement sent eFunds shares up more than 2% to close at $35.33 on the New York Stock Exchange.

eFunds had been considered an acquisition target recently and on May 9 the company officially announced it was undertaking a strategic review of its options and announced it had been approached by interested parties. Media reports following the announcements cited FIS and Fiserv, another major competitor, as some of the potential buyers.

Ever since the May 9 announcement, eFunds’ share price has been climbing. And using the pre-strategic review share price of $28.49 for the close of May 8, FIS’ purchase price represents a more handsome and perhaps more indicative 28% premium.

The biggest deal so far in the payments sector came this April, when private equity group Kohlberg Kravis Roberts & Co paid $29bn for First Data, the world’s top payment processor. The deal came at a 26% premium to First Data’s share price, but that number is actually slightly misleading, since KKR assumed another $3.4bn on top of the all-cash share purchase for First Data’s debt and the vesting of stock options.

Also in April, Wisconsin bank Marshall & Ilsley announced plans to spin off Metavante, it technology and processing business, into a public company, with private equity group Warburg Pincus paying $625m for 25% of the shares, and the rest going to Marshall & Ilsley shareholders. Including some $1.75bn in Metavante debt, the spin-off would be a $4.25bn transaction.

In May, private equity firm Blackstone Group purchased Alliance Data Systems, a credit card services company, for $7.8m–a roughly 30% premium, plus some debt. So the eFunds deal is par for the course in terms of premiums.

The acquisition brings some new strength to FIS in the areas of risk management, electronic fund transfer, and prepaid and debit cards. FIS, which itself was spun off from parent company Fidelity National Financial, a large title insurance provider, after FNF’s IPO last year, has a deep presence in the mortgage market, so eFunds should round out its offerings quite a bit. FIS also has a very far reach in the small and community bank market.

Both firms are midsized players in the industry, and even as one combined company, they don’t approach the scale of processing giants First Data and TSYS. FIS reported consolidated revenue of $1.1bn for 2006, with net income of $75.1m. Efunds is half the size, with revenue of $552m and net income of $55m last year. The companies said the merger would shave $65m off combined annual costs.

The acquisition is expected to close in the third quarter. FIS is financing the deal though a combination of cash and long-term debt.