September 13, 2011

Equifax Inc. 

 

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Valuation – 2010 Investment in TransUnion by Madison Dearborn Provides Glimpse of Equifax Value 

We believe the pending IPO of TransUnion could help bring U.S. investors’ attention to credit 

information companies, providing a boost for Equifax’s valuation. Although Experian, Equifax’s other main 

global competitor is publicly traded, its shares trade on the LSE. The recent S-1 filing by TransUnion, which 

has been filed in advance of a potential TransUnion IPO, allows investors to construct a good comp as 

Madison Dearborn acquired a 51% stake in TransUnion during 2010 from the Pritzker Family. We estimate that 

Madison Dearborn paid ~8.5x-9.0x EBITDA for its 51% stake in TransUnion.  

Experian, whose shares sell on the LSE, currently trades at 9.5x trailing EBITDA, which is at a 

premium to Equifax’s current valuation of 8.0x trailing EBITDA. In our view, Equifax’s discounted multiple is 

curious given the Company’s strong cash flow generation. In addition, the Company’s EBITDA margins (low 

30s%) are on par with both Experian and TransUnion.  

Applying a 9.0x multiple to our estimate of Equifax’s 2012E EBITDA, our estimate of the Company’s 

intrinsic value is $44 a share, representing 41% upside from current levels. We believe that additional upside is 

possible with a better than anticipated housing/economic recovery. In addition, our valuation does not assign 

any value for the Company’s promising emerging market equity interests, which could become a significant 

value creator for Equifax over time.  

Equifax Valuation Summary 

 

Value 

($MM) 

EFX @ 9x 2012E EBITDA 

$6,059  

2012E Net Debt 

($675) 

Underfunded Pension and Other Benefits* 

 ($123) 

Equity Value 

$5,261  

 

 

2012E Shares Outstanding 

120.3 

 

 

Estimate of Instrinsic Value (Per Share) 

$43.74 

 

 

Implied Upside to Intrinsic Value Estimate 

41.0% 

*As of 12/31/10 

 

Amortization Expense Obscures Company’s True Earnings Power  

It is worth highlighting that Equifax’s earnings per share includes significant amortization expense (due 

to acquisitions) related to definite lived purchased intangible assets. For example, during 2010 the Company 

recorded $90 million (~$80 million in each of 2008 and 2009) in amortization expense related to purchased 

intangible assets. Accordingly, the Company’s diluted EPS from continuing operations of $1.86 would have 

been $~2.30-$2.35 if you were to exclude this amortization expense, a large amount of which is due to the 

2007 TALX acquisition. Investors looking at EFX on a reported EPS basis should be aware of the outsized 

amortization expense that is embedded in the Company’s reported results.    

The following summarizes EFX’s estimated future amortization expense related to definite-lived 

purchased intangible assets at December 31, 2010: 

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Equifax Inc. 

 

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Future Amortization Expense at December 31, 2010 

Years ending December 31, 

Amount  

(in millions)

2011 

$   94.8  

2012 84.7 

 

2013 60.0 

 

2014 46.8 

 

2015 43.1 

 

Thereafter 264.5 

 

   

$ 593.9  

Conclusion 

In our view, it would be virtually impossible to replicate Equifax’s proprietary databases, many of which 

have been built over multiple decades if not centuries. The Company’s data assets include over 200 million 

U.S. credit files, The Work Number database that contains over 200 million employment related records, 

$10 trillion in consumer wealth data from the IXI database, the National Consumer Telecom & Utilities 

Exchange (positive and negative databases) and nearly 30 million files of small business information. In our 

view, Equifax is well positioned as a provider of solutions in today’s stricter lending environment with its broad 

sources of consumer and business information.  

While tighter lending standards and a challenging economic environment have pressured results 

recently, we believe Equifax will be a prime beneficiary when a housing recovery takes hold. During the 

downturn, Equifax has continued to invest in its business to drive profitable long-term growth. The Company 

has introduced a total of 137 new products over the past two years, a number of which are playing a large role 

in the Company’s growth.  

We believe that Equifax is well positioned to benefit from growth in emerging markets in the coming 

years. The middle class population is exploding in emerging markets, which should boost lending activity and 

drive demand for credit based information tools and analytics. Equifax currently has operations and equity 

interests in a number of emerging markets with attractive growth opportunities including Russia, India and 

Brazil.  

The competitive environment that Equifax operates in is extremely favorable, as the industry is 

characterized by high barriers to entry and dominated by just three global players. In addition, Equifax  

operates an attractive business model that generates a high amount of recurring/repeatable revenue streams, 

produces high margins and throws off a significant amount of free cash flow. As a testament to the Company’s 

business outlook and future growth prospects, Equifax recently boosted its dividend by four-fold to $0.16 on a 

quarterly basis from $0.04. We believe that share repurchases will also become a priority for the Company 

given the Company’s current valuation (6.6x 2012E EBITDA), and multi-year low leverage levels (current 

Debt/EBITDA: 1.6x). 

Applying an 9.0x multiple to our estimate of the Company’s 2012E EBITDA, we estimate Equifax’s 

intrinsic value to be $44 a share, representing 41% upside from current levels. We believe additional upside is 

possible with a faster than anticipated economic/housing recovery and/or faster than anticipated contribution 

from investments in emerging markets. 

Risks: 

Risks that Equifax may not achieve our estimate of the Company’s intrinsic value include, but are not limited 

to, an adverse impact from financial regulation, inability to access consumer data including credit, income, 

employment an wealth data, and further decline in consumers’ appetite for credit.  

Analyst Certification: 

Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views of 

our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts’ 

compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report. 

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