Equifax Inc.
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In addition to the Company’s operations in the aforementioned countries,
Equifax has equity interests
in credit information businesses in Brazil (15%), Russia (33%) and India (49%). These investments should
further diversify the Company’s exposure away from the U.S. and allow it to benefit from the growth of middle
class populations in these emerging markets.
Industry Overview - Competitive Advantages and Market Overview and Potential
Equifax is one of only three large global players (Experian and TransUnion are the primary
competitors) in the credit reporting and credit information businesses and currently boasts a number one or
number two market share in most of its major markets.
Equifax - Global Market Share
Source: Company presentation, August 2011
Competitive Advantages and Industry Overview
In our view, Equifax’s competitive advantages reside in the Company’s 100+ year history of building,
maintaining and analyzing large databases of credit information. It would be virtually impossible to replicate
many of the Company’s databases as well as the proprietary analytical tools utilized to create customized
insights, decision-making solutions and processing services for businesses. Although the Company licenses
credit related algorithms from Fair Isaac Corporation (FICO) and the FICO score remains well recognized in
the industry, the number of online transactions that include an Equifax analytical component continues to
increase. During the 2Q11, 39 % of EFX’s online transaction volume within the OCIS business unit included an
analytical component from an Equifax model vs. 32% in 2Q10 and up from 23% in 1Q08. While Equifax
generally obtains the data for its databases on favorable terms (in some cases free) and the data is typically
not provided on an exclusive basis, we believe barriers to entry for the business are extremely high. Institutions
that provide Equifax credit and wealth data need to be assured that they are handing over the data to a
Company that has the infrastructure in place to keep the data secure.
Equifax derives the bulk of its revenue from its U.S. operations where there are just three major
national players (Experian and TransUnion are the other two). We believe this bodes well for a rational pricing
environment given the oligopoly type industry composition. Further, we would also note that peer TransUnion
has become heavily levered (~5x debt to EBITDA) in conjunction with Madison Dearborn’s investment. While
TransUnion’s leverage may be reduced if the Company completes its pending IPO, TransUnion’s leverage
would still likely be at elevated levels.
Equifax Inc.
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U.S. Credit Information - Market and Growth Potential
Although the U.S. is generally considered a mature/developed market, the market for business
information services is large and growing. According to recent data from industry researcher Veronis Suhler
Stevenson (VSH), spending on business information in the U.S. was $51.6 billion in 2009 of which $11 billion
was attributed to spending on credit and risk information. VSH expects that credit and risk information spending
will grow at a 6.4% CAGR between 2009 and 2014.
Emerging Markets Overview
Emerging markets should present good growth opportunities for the Company. A recent report
(April 2011) by the International Monetary fund projects that in 2012 the average GDP of emerging markets is
projected to grow at 2.5x the rate of developed markets. As emerging markets continue to develop and mature,
these economies should experience favorable socio-economic trends including an expanding middle class that
increasingly makes use of financial products and services. We believe that Equifax is well positioned with a
presence in a number of high growth emerging markets.
Personal Solutions Overview and Outlook
Equifax currently derives just 10% of its business from consumers globally (9% in the U.S.). The direct
to consumer market is a relatively new market for the industry with Equifax releasing its first consumer product
in the early 2000s. The advancement of the Internet has allowed companies to target and deliver products to
this market more efficiently and cost effectively. According to credit industry researcher Javelin Strategy and
Research, the market for online credit monitoring and identity theft protection services is $2.4 billion. With
identity theft ranking as the top consumer complaint received by the FTC during 2010, coupled with financial
institutions’ reluctance to lend and stricter lending standards, individuals have become more interested in
understanding their credit profile. Accordingly, consumers are increasingly accessing their credit reports and
purchasing credit monitoring services. Equifax currently boasts the number 1 consumer market share in the
U.S., Canada, and in a number of markets in Latin America.
U.S. Consumer Information Solutions (USCIS)
The U.S. Consumer Information Solutions Segment (USCIS) is the Company’s largest segment and
consists of three product and service lines. The following illustrates USCIS revenue by product and service
line:
USCIS - Revenue by Business Unit ($MM)
Online
Consumer
Information
Solutions
66%
Mortgage
Solutions
15%
Consumer
Financial
Marketing
Services
19%
$485.1
$113.5
$144.3
Total USCIS Revenue: $742.9