Equifax Inc. (EFX), a leading credit information and database provider, recently disclosed that it would be selling all assets of its Direct Marketing Services division to Alliance Data Systems (ADS) for $117.0 million. This would be an all cash transaction, where the actual amount receivable would take into account the working capital and other adjustments.
 
The company expects that this transaction will result in a one-time gain (after tax adjustments) of 8 cents per share, and is expected to be completed within the next 30 days, subject to the satisfaction of all customary conditions. The company expects to use the proceeds to expand its business and to meet other general corporate transactions.
 
Equifax is well-positioned to benefit from its leadership in important markets, heightened consumer concern regarding identity theft and strength in international markets. While Equifax’s core business remains solid, the sale of its direct marketing division the company would be able to focus better on its main business. This apart, the company is driving growth through new product launches and international expansion.
 
This is not the first sale that the company has entered into in recent times. A couple of months back, Equifax made an announcement that it will be selling the APPRO loan origination software unit of Equifax Enabling Technologies LLC to an Italian credit reporting firm CRIF Corp for $72.4 million in cash.
 
The company is streamlining its operations, focusing on its core competency and concentrating on functions such as credit scoring, credit modeling services, decision making tools, fraud detection and consultancy services.
 
Equifax delivered decent first quarter results, with EPS exceeding the Zacks Consensus Estimate. The company has provided encouraging guidance for the second quarter. The alliance with IBM (IBM) is expected to help the company improve customer service and also grow the customer base.
 
This apart, the new partnership agreements should help the company serve its existing customers better. New product introductions although not substantial will also help. However, given the strong correlation to consumer and financial markets, as well as the company’s U.S. exposure, any improvement in results will only be in line with the recovery of the U.S. economy.
 
Considering the aforementioned factors, we are reiterating our Neutral rating on EFX shares.
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