CoreLogic: Potential Acquisition by a Financial Sponsor?
The data analytics space has been seeing increasing M&A activity over the past few months. Mergers and acquisitions are only expected to grow with data analytics players delivering solid results amid the Covid-19 environment and seeing their stock prices soar.
An interesting analytics company operating within the niche of real estate and insurance-related data is in the midst of talks for getting acquired by a financial sponsor. That company is CoreLogic Inc (NYSE:CLGX), and it has shown strong resilience to the tough business environment and announced solid guidance for the year.
Company overview
CoreLogic is a data and analytics provider catering to the real estate and insurance industries. The company's solutions look to provide property information, mortgage information and consumer information to deliver housing market and property-level insights, predictive analytics, risk management capabilities and data-enabled solutions.
Over and above the real estate industry and the insurance industry, its client base includes commercial banks, credit unions, mortgage lenders and brokers, investment banks, fixed-income investors and government agencies. It has a workforce of around 5,100 people and provides its solutions across North America, Western Europe and the Asia Pacific. The company is one of the oldest data providers to the real estate sector in the U.S. and was founded back in 1894, when it was known as The First American Corporation.
As of the writing of this article, CoreLogic is headquartered in Irvine, California and is a leading name in the world of data analytics for the real estate and insurance industries.
Financial results
CoreLogic reported a solid result for the quarter ended March 31, which included revenue of $443.89 million, or a 6% as compared to the corresponding quarter of the previous year. The company succeeded in beating the analyst consensus estimate of $438.94 million, driven largely by growth in core mortgage and insurance and spatial sectors.
There was a phenomenal growth of 216% in the operating income from continuing operations, reported at $67 million, resulting not just from an augmented top-line but also a favorable business mix, operating leverage and strong cost productivity benefits. CoreLogic managed to carry out strong customer acquisitions and acquire market share as its net income from continuing operations rose to $34 million, resulting in adjusted earnings per share (EPS) of 76 cents a share, above the analyst consensus estimate of 71 cents.
CEO Frank Martell has been highly optimistic about Underwriting and Workflow Solutions revenues, which totaled $276 million for the quarter, demonstrating 13% growth.
Failed acquisition attempt
CoreLogic has been attracting the interest of financial investors from the point of view of a buyout. The company was in the news for an unsolicited buyout offer made by two investment firms, namely Senator Investment Group LP and Cannae Holdings Inc. (NYSE:CNNE). The buyout offer valued the company's stock at $65 per share, thus resulting in the overall buyout value of around $7 billion. It is worth highlighting that Cannae Holdings and Senator Investment Group already hold around 15% ownership in the company.
The CoreLogic management went ahead and rejected the offer because they expected a greater value per share and also because they refused to open their books to the buyer. The stock price zoomed to $67 after the rejection, above the offer price.
Despite CoreLogic's recent guidance update for 2020 and their financial projections for 2021 and 2022, Senator Investment Group and Cannae Holdings did not revise the original proposal of $65 per share, which is what led to the deal not going through.
The management has changed its stance post the failure of this deal and are looking at a strategy similar to a "poison pill" takeover defense. They announced the distribution of a dividend of one right for each share of its common stock held as of the close of business on July 17, exercisable if a person or group acquires beneficial ownership of 10% or more of its common stock (or 20% in case of some passive investors). This might be a way to deter acquisition attempts by financial sponsors in the coming months by diluting any hostile takeover bids.
Key takeaways
While CoreLogic may not have paid dividends, it has a history of shareholder value creation not just through a highly positive Return on Equity but also through paying back shareholders via buybacks. The stock price has appreciated as much as 45% over the past 12 months, so there is little doubt that the company has returned a significant amount of capital back to its shareholders over the past decade.
After the company recently rejected the proposal of Cannae Holdings and Senator investments, it went ahead and announced an additional $1 billion in its buyback program and also raised its guidance for 2021 and 2022. All these recent announcements are doing well to highlight the financial attractiveness of the company as an independent entity and its attempts at keeping potentail acquirers at bay.
Disclosure: No positions.
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This article first appeared on GuruFocus.
