A Canadian Prairie- based financial planning software company has acquired its major U.S. competition and become the world’s largest financial planning software firm.

Emerging Information Systems Inc. picked up Financial Profiles Inc. from Hannover Insurance Group Inc. for an undisclosed amount of cash, giving the combined firm 120,000 users — slightly less than one-quarter of the population base of Winnipeg, the city in which it is headquartered.

“The combined entity, by far and away, has the most seats in the market,” says Matt Schott, director of research at Needham, Mass.-based TowerGroup Inc. , an industry consultancy. “It expands EISI’s presence across the broker-dealer and insurance communities.”

The combined company will generate about $40 million in sales in 2007, just about doubling its 2006 revenue target. That’s up from about $12 million in 2002 and just $600,000 in 1995.

With the acquisition of Financial Profiles, EISI, which sells NaviPlan financial planning software in Canada and the U.S., adds major U.S. brokerages, such as New York-based Merrill Lynch & Co. Inc. and Illinois-based AllState Corp. , to its client list.

Canadian advisors will have the assurance of a stable software provider in a notoriously tough market. Some of Financial Profiles’ reporting methods are more sales-focused, says Mark Evans, EISI’s president and CEO, and some of these features could be added to NaviPlan in the future.

Evans says a common feature of both companies was their approach to data consolidation — the benefits of which may appear in later versions of both applications. For now, U.S. users of both NaviPlan and Financial Profiles can take their pick of the features from either application.

In the U.S. market, EISI will continue to provide both NaviPlan and Financial Profiles applications on both Window-based and Internet-based platforms. A new version of NaviPlan will be released next year on both platforms.

The deal makes sense from a couple of perspectives, says Schott. EISI typically accesses a range of advisors from the insurance industry, whereas Financial Profiles has broker-dealer strength. EISI will also be able to make good use of Financial Profile’s technological strengths.

“Financial Profiles has a framework for integrating applications and consolidating data, which will help as the industry starts moving its focus from asset accumulation into cash-flow planning, distributions and other structures in the drawdown process,” says Schott.

EISI is a real success story for a firm that began as a doctoral project at the University of Manitoba in the late 1980s. TowerGroup says that, only three years ago, no single software provider dominated the market before NaviPlan took on its higher-profile U.S. competition. After some aborted discussion, it was invited to the table last spring.

The acquisition adds financial stability, says Evans, who founded the company in 1990. “It gives us recurring subscription and licensing fees. Almost 75% of our combined revenue is subscription-based licensing revenue. Until now, we have had 50%-60% service- and 40%-50% customer-based revenue, which is less stable and predictable.”

An added benefit is that almost half of EISI’s revenue will be in U.S. dollars, says Evans. Cross-border sales provide a natural currency hedge for the flagging greenback, which had been obscuring the company’s growth for two years.

EISI is majority-owned by Toronto-based Birch Hill Equity Partners Inc., which was created in a management buyout of TD Canadian Private Equity about 18 months ago. TD Capital took an exploratory 10% slice of EISI in 2003. The rest of EISI is held by its employees through a share-ownership plan.

Birch Hill was instrumental in putting together the deal, says Evans. The firm brought its experience in financial structures, price negotiation and tax expertise to the cross-border deal. Some buyouts and layoffs, mostly in the U.S., are part of the deal, but the combined company now has slightly less than 300 employees — most of them in Winnipeg.

Evans says part of the reason EISI has been able to compete is that its U.S. competitors can’t enter the Canadian market cost-effectively.

“The tax systems and different financial vehicles are pretty complex,” Evans says. “So, this keeps U.S. developers out of the marketplace.” IE