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Equifax, Inc. (EFX) April 20, 2010, (concluded April 22, 2010). Alex Florea Michael Lavin Andrew Lee Catherine Lien Akrati Johari. Presentation Overview. Company Overview Industry Overview Macroeconomic Analysis Competitor Analysis Multiples Valuation Pro-forma Assumptions
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DCF and WACC Calculation
Household credit market debt
10-year bond rate
Real GDP growth
Per capita disposable income
Legislative compliance requirements
The industry’s revenue is largely comprised of income that is generated from rating services related to consumer debt.
Credit bureaus benefit from a rise in credit applications associated with the credit cards, mortgages or home equity loans.
While credit rating agencies benefit from the repacking and sale of consumer loans on the secondary market
Industry revenue is driven by credit reporting and rating activity related to consumer and business debt.
The industry also benefits from the issuance of debt securities within the capital markets.
Interest rates generally affect the rate at which debt is issued.
Higher interest rates negatively impact the level of borrowing and debt issuance, resulting in lower income for credit bureaus.
An increase in economic activity is generally associated with a rise in borrowing by consumers and businesses.
As borrowing increases, credit applications rise and the demand for credit rating services increases.
Conversely, in poor economic times, borrowing decreases as consumers and businesses cut spending and management costs.
Adversity within the secondary market also affects the issuance of debt, decreasing the demand for credit rating services.
According to Consensus Economics, US Real GDP growth expected to grow (YOY) by 3.1% in 2011, 3.0% in 2012-2016, and 2.6% in 2017-2021.
An increase in real disposable income generally leads to a rise in borrowing activity, which is beneficial to the US Credit Bureaus industry.
Access to capital increases as disposable income rises.
Individuals with higher levels of disposable income, generally have stronger credit records, allowing them to borrow money.
For example, individuals with strong credit records, income and savings are approved for mortgages at higher rates then poorer people.
The legislative compliance requirements are government policies relating to credit rating methodologies, practices and accountability.
Any rise in legislative compliances on credit rating activity increases the cost of providing services.
Since the start of the recession, the industry has been scrutinized for its involvement in the rating and structuring of complex debt products.
Critics blame the industry for not identifying the systematic risks associated with packaging low quality subprime mortgages into securities that were sold as high quality investment grade products.
Larger CRAs also faced scrutiny for not maintaining objectivity when assessing debt instruments.
As a result, the industry has begun to face tougher regulation from the SEC and other government agencies.
Based on the uncertainty in the global economy,, we expect revenue in the first quarter of 2009 to be similar to the fourth quarter of 2008 (Annual Report 2008)
4th Quarter 2008 revenues = $464.2 million
1st Quarter 2009 revenues = $452.9 million
Based on current rates of economic and credit activity in the U.S., we currently expect revenue in the OCIS and Credit Marketing Services lines and in the overall USCIS segment in 2009 to be below levels achieved in 2008. (Annual Report 2008)
Realizing cost savings from 2009 restructuring
LEAN & Work – Out
14.4MM charge recorded related to headcount reduction and contractual costs
Entered into put contract with Computer Science Corporation for credit reporting business
$675MM in 2013
122MM reserved for 2009