IHS Inc. (IHS) is a provider of technical information, decision-support tools and related services to customers in the energy, defense, healthcare, aerospace, construction, technology and automotive industries. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. Headquartered in Englewood, Colorado, USA, the company is committed to sustainable, profitable growth and employs more than 6,700 people in 31 countries around the world.
The business information and analytics firm recently announced that it will spend $1.4 billion to buy the privately held company R.L. Polk, a recognized leader in providing automotive information and analytics solutions. The $1.4 billion transaction will be funded with 10 percent equity and the remainder with cash on hand, cash from an existing revolver and a new bank term loan. This acquisition will give access to R.L. Polk's more than 30,000 customers worldwide.
IHS President and Chief Executive Officer Scott Key said in a statement that the acquisition will bring extensive and complementary information and analytical solutions, which will position IHS as a vital strategic partner of the global automotive value chain. Furthermore, the combined companies will create a comprehensive capability in the automotive industry that will significantly enhance customers' insights and decision processes across the full vehicle life cycle; ranging from product planning, manufacturing, and sales to automotive after markets. R.L. Polk is a company with approximately $400 million in annual revenues.
R.L. Polk is the leading provider of automotive information and marketing solutions. The organization collects and interprets global data, and provides extensive automotive business expertise to help customers understand their market position, identify trends, build brand loyalty, conquer new business and gain a competitive advantage.
The company consists of two divisions including Polk and CARFAX. Polk provides mission-critical market data, analysis and tools for the entire automotive ecosystem. CARFAX provides vehicle history information to enhance used vehicle purchase and sales decisions. This division is the primary source of vehicle history information for cars operating in the US and Canada.
The company provides a comprehensive collection of essential technical information to capital-intensive industries, which is very difficult to replicate. This gives the company strong pricing power that has contributed to organic sales growth. This is the reason the company managed to generate higher revenues over the period of five years, with a CAGR of 16.03 percent. A slight drop in operating margins was due to the distressed economic conditions in the United States.
Consistent growth in Profits:
The chart above shows the company's net income and its earnings per share over the period of five years. The company was able to generate consistent growth in net income, represented by the linear trend line, with a CAGR of 12.4 percent. The decline in net income in2011 was due to U.S. economic conditions. The company posted earnings per share of 2.37 in 2012, compared to 1.57 in 2008, at a CAGR of approximately 11 percent, respectively.
Strong Assets growth:
This graph indicates growth of the company's total assets over the five-year period. Since 2008 you can see a consistent growth in total assets, with a CAGR of 25.38 percent, due to its series of acquisitions. Since 2007 the company has successfully acquired and integrated more than 50 acquisitions.
IHS is a growth company, as it currently pays zero dividends and invests all of its earnings in operations and expansion of business. So the company adds value to its shareholders through organic growth and acquisitions. The acquisition of R.L. Polk will help the company to build its stake in the automotive industry by complementing its existing automotive products, which will open up large adjacent markets for the company. Most importantly, the continued growth and transformation of the automotive industry through the next decade, led by global growth in light vehicle demand, technological changes and the transformation of the OEM supply chain, will generate strong growth in demand for data, research and analytics to support investment decisions. I recommend investors to take a long position on this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Core Equity Research, Analyst. Core Equity Research is not receiving compensation for it (other than from Seeking Alpha). Core Equity Research has no business relationship with any company whose stock is mentioned in this article.