CoreLogic Acquisition Rumors Are Flaring Up

Sep.27.11 | About: CoreLogic, INC. (CLGX)

By Justin Dove

Back on August 30, data and analytics company CoreLogic (NYSE: CLGX) announced that it hired investment bank Greenhill & Co.to help advise a potential sale.

Friday, rumors were picking up steam as analysts predicted the company’s stock could fetch a premium of between 30 and 50 percent. By Friday afternoon, CoreLogic options activity was up 382 percent more than normal, signaling optimism at a possible sale.

Its stock was trading around $11.50 on Friday – 47 percent above its low in late August, but 43 percent less than its 52-week high.

Reuters reported that TPG Capital paid “about 11 times EBITDA” in buying CoreLogic-competitor MDA DataQuick last year. That means someone could pay up to $18 per share for CoreLogic – a 56-percent increase over Friday’s price.

CoreLogic Wooed By Up to Seven Suitors

Reuters also reported that “at least two strategic buyers and five private equity firms have shown interest in the company.”

Companies listed as showing interest are:

  • IBM (NYSE: IBM)
  • InfoSys (Nasdaq: INFY)
  • Accenture (NYSE: ACN)
  • Fidelity National Information Services (NYSE: FIS)

The more suitors there are for an acquisition, the higher the probability of a bidding war. If these rumors prove true, CoreLogic and its shareholders may stand to benefit.

CoreLogic’s Core Data and Analytics Products

CoreLogic is a data and analytics company spun off from First American Financial Corp. (NYSE: FAF) last year. The company operated at a profit the last two quarters, but failed to deliver for investors since its spin-off.

CoreLogic’s core data and analytics products provide things from risk and fraud analysis to risk management and specialty financial data.

But considering its bread and butter is mortgage data and analytics, the company is struggling along with the housing market. Some analysts also believe that a complicated business plan is also holding back the newly independent company.

“They have a bunch of things going on at the same time,” an analyst told HousingWire.com. “It’s a complicated business model which makes it tougher for investors.”

CoreLogic: Just Parts of a Whole?

This assumption makes some wonder if CoreLogic will be sold as a whole, or whether it will just sell pieces of its company to lighten the load.

  • CoreLogic already sold off its India-based operation to Cognizant (Nasdaq: CTSH) in July. This all came after expansion earlier this year.
  • In January, CoreLogic bought RP Data, a firm that operated in similar segments in Australia and New Zealand, to increase exposure to the Asia-Pacific region.
  • Then in March, it bought cloud-computing firm Dorado Network Systems Corp. to enable data cloud options to its clients.

CoreLogic certainly could just be optimizing its operations, but analysts, such as Morningstar’s Brett Horn, believe the company is most valuable as a whole.

“I think their complete business is more valuable than in pieces,” Horn told Reuters. “Just selling these pieces separately to different buyers is probably not going to be the most effective way to realize their value.”

CoreLogic’s Struggling Bottom Line

CoreLogic, although profitable, is struggling. There’s also the potential that it will only sell pieces of its business. But if the whole company is sold to a strategic buyer or investment firm, investors could make a quick profit on the premium.

A potential sale is somewhat priced into the stock, as shown by its 40-percent gain since the announcement. But the stock is likely undervalued due to a slumping overall market and a poor housing industry, but should still garner a further premium from a potential buyer.

Considering the 52-week high is above $20 per share, there’s reason to think a possible a buyer could pay close to that amount. It also bodes well that there are up to seven suitors. A bidding war could drive up the premium.

It may be wise to stay tuned to see if CoreLogic does in fact get bought out as a whole and how much companies are willing to fork out.

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