CoreLogic - More Upside After 2 Strategic Acquisitions

Jul. 9.13 | About: CoreLogic, INC. (CLGX)

Investors in CoreLogic (NYSE:CLGX) are applauding the set of acquisitions which the company made at the start of the month.

The combination of a solid valuation, the strategic transformation and increased repurchase activity all bode well for shareholders in the coming period.

The Deal

On July the 1, CoreLogic announced that it has entered into a definitive agreement to acquire Marshall & Swift/Boeckh and DataQuick Information Systems.

CoreLogic will pay $661 million in total for the two companies. The acquisition of Marshall & Swift adds residential and commercial property valuation solutions for the property and casualty insurance industry. DataQuick supplies a range of analytical solutions including credit reporting, flood zone determination services, fraud monitoring and property valuation services, among others.

With the acquisitions, CoreLogic will double its property and casualty insurance revenues. CEO Anand Nallathambi commented on the rationale behind the two deals:

The acquisition of MSB and DataQuick significantly expands our footprint in property and casualty insurance and adds additional scale to our existing property data and analytics business. The combination of MSB and our existing geo-spatial business capabilities and property-related data assets allows CoreLogic to provide our clients in the insurance industry with new and unique insights into underwriting property coverage as well as managing natural hazard risks and claims.

The $661 million purchase price is somewhat inflated. CoreLogic expects to realize cash tax benefits with an estimated present value of around $115 million. Adjusted for this, the deals are valued at $546 million. The deal is expected to be accretive to 2013's results excluding the one-time reduction in deferred revenue.

The activities generated $111 million in annual revenues in 2012, valuing the assets at 4.9 times annual revenues. The deal is valued at 9.6 times 2013's expected EBITDA including $7 million in annual synergies and adjusted for the value of tax benefits. These estimates exclude the possibility for additional cost and revenue synergies.

The deals are expected to close in the third quarter of 2013, and are subject to normal closing conditions including regulatory approval.

Valuation

CoreLogic ended its first quarter with $125.6 million in cash and equivalents. The company operates with $788.2 million in total debt, for a net debt position of around $663 million. Yet the company has access to plenty of liquidity given its $500 million capacity within its current revolving credit facility.

CoreLogic generated full-year revenues of $1.57 billion for 2012, up 17.1% on the year before. The company reported a $112.3 million net profit compared to a sizable loss the year before.

Trading around $25 per share, the market values CoreLogic at $2.4 billion. This values the firm's assets at around 1.5 times annual revenues and 21-22 times annual earnings.

CoreLogic does not pay a dividend at the moment, instead it returns cash to its shareholders by means of share repurchases.

Some Historical Perspective

While the housing market has rebounded in recent times, shareholders in CoreLogic still have a long way to go. Shares rose from $25 in 2004 to a peak of $55 in 2007. Shares fell to lows of $8 in 2011, but have tripled from that point in time to exchange hands around $25 at the moment.

Between 2009 and 2012, CoreLogic has increased its revenues by a cumulative 18% to $1.57 billion. Net income fell by more than 40% to $112.3 million.

Investment Thesis

CoreLogic is benefiting from a number of beneficial events. A solid rebound in the housing market, strategic acquisitions and increased share repurchase activity, all boost shareholder value.

First-quarter revenues rose by 10.9% to $397.2 million, putting the company on track to generate annual revenues around $1.75 billion. Net income rose by 18.1% to $34.2 million, as the company is on track to report net earnings of $130 million. Factoring in impact of the acquisitions, revenues could approach $1.9 billion in 2013 on which CoreLogic could earn $150 million.

The deal is furthermore in accordance with CoreLogic's strategic plan, boosting the share of revenues of the data and analytics unit to more than 50%. At the same time, CoreLogic also raised the share repurchase target to 8 million shares for the year, up from merely 3-5 million shares before, allowing the company to retire some 8% of its current share base.

While the transaction occurs at premium valuation multiples to CoreLogic's own valuation, investors applaud management with the deal. Shares rose 8% following the announcement of the deal, boosting the valuation of the company by almost $200 million. Investors like the strong brands, the subscription-based business models and very high renewal rates of annual contracts. Marshall & Swift has renewal rates of around 95%, which is really attractive coupled with very low variable costs.

Trading around 1.25 times 2013's expected annual revenues and 16 times annual earnings, shares are fairly valued. The appeal of the deal is the more predictable nature of CoreLogic's cash flows, making the company less vulnerable to the cyclical nature of the industry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.