More than 10 years ago, private-equity firm Welsh, Carson, Anderson, & Stowe used savvy financial engineering to merge J.C. Penney's
ADS helps companies deploy loyalty and marketing solutions that are based on its consumer-transaction processing systems and databases. Because of its acquisition of Abacus from DoubleClick, the company has a rich database of opt-in emails.
The business model is compelling. The contract lengths are typically three to five years, and fees recur monthly based on the number of customer interactions. There are more than 600 clients, many of which are large organizations like Bank of America
Over the past seven years, the compounded annual growth rate (CAGR) of revenues was 18%, and EBITDA was 30%. The guidance for 2007 is for revenues of $2.2 billion and EBITDA of $615 million. These are juicy numbers and makes it a no-brainer to get financing for a going-private transaction.
The valuation is reasonable at roughly 12.6 times EBITDA. For top-flight companies, the multiples tend to range from 12 to 14. With ADS's stock price currently below Blackstone's $81.75-per-share offer, Wall Street thinks it's unlikely for another bidder to come along.
Since April, we have seen other big deals for financial processors. KKR agreed to buy First Data
It's a good bet that the dealmaking will continue in this space, with some of the prospects including Fiserv, Global Payments, and Total System Services. While it's not Foolish to speculate on buyout ideas, the smart money thinks the space is compelling, and so it's probably a good idea to look closer at the remaining players.
- A Rule Making Success Story: First Data
- A First Look at Blackstone
- Emotions Run High at Global Payments
First Data is a Motley Fool Inside Value selection. Take a free trial to find more great companies that trade below their intrinsic value.
Bank of America and Limited Brands are Income Investor recommendations.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is currently ranked 1,898 out of 28,990 rated players in Motley Fool CAPS.