Why didn't Equifax bid for Veda in 2013?
Equifax is paying 116% more than Veda's 2013 float price. But looking at the takeover from its point of view, Veda will cost just 7% more in US dollar terms.
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Friday's takeover bid for Veda Group (ASX: VED) by US credit reporting giant Equifax (NYSE: EFX) seems surprising. The bid – at $2.70 per share – is more than double the company's 2013 initial public offering (IPO) price of $1.25.
Presumably Pacific Equity Partners (PEP), Veda's former private equity owner, shopped the company around in 2013 before deciding to proceed down the IPO route. Why didn't Equifax buy Veda then?
Here's a theory.
PEP retained 64% of Veda after listing so, even though it obtained only $1.25 per share in the IPO, its average sale price has been more like $1.85. PEP sold the last of its stake in February at $2.18 a share.
Based on our calculations, if PEP expected to realise around $1.85 per Veda share on average, a bid in 2013 would have cost Equifax around US$1,660m. At the time, it would have represented a prospective EV/EBITDA multiple of about 15 (using 2014 forecast earnings).
Similar multiple
Interestingly, that's about the multiple Equifax is paying at $2.70 because Veda's earnings have increased strongly over the past two years (and net debt has fallen too). In US dollar terms, Equifax is only paying slightly more for Veda – around US$1,780m in total – because the Australian dollar has weakened by 20% since December 2013.
It's an interesting lesson. Originally we wondered why Equifax didn't pay $1.25 per share in 2013, but it probably didn't have the opportunity to buy at that price from PEP. Two years later, the EV/EBITDA multiple is similar, while the total cost in US dollar terms is only 7% higher.
Equifax is also a much larger company than it was in 2013, with a share price up 40% since then. Looking at it from Equifax's perspective, it's in a stronger position to acquire Veda than it was two years ago.
There are two sides to every transaction and, based on this analysis, the 116% increase in Veda's share price doesn't seem quite so significant. No wonder we think Equifax has a bit left in the tank. Veda shareholders will find out soon enough.
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