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Polaris Software Lab
Acquires IdenTrust: long-term positive
Polaris announced the acquisition of IdenTrust, an identity technology solutions
company. While marginally EPS dilutive in FY12 (RBS est. 3%), we see synergies:
cross-selling IndenTrust and Intellect products, using acquired data-centre to
offer Intellect on a hosted model and moving storage requirements.
IdenTrust is a niche technology solution provider in BFSI/Government verticals
! Polaris announced the acquisition of IdenTrust, a provider of identity technology solutions.
IdenTrust was established in 1999 by a consortium of banks to develop policies, standards
and solutions for identity authentication.
! IdenTrust largely serves the BFSI client base (90% of revenues) and counts large financial
institutions like BoFA-ML, CitiGroup and HSBC. Besides it works with several US Federal and
State Governments/agencies and non-BFSI clients like Delta Airlines and Best Buy.
! Besides the products, the company also offers an identity platform managed through its
owned data centre.
Current financials uninspiring, but model has significant operating leverage
! Management guided for IdenTrust annualized revenues of US$11m for FY12. Revenues for
the past two years have been in the US$9m-10m range. We believe the revenue base is quite
small, given that the company has spent US$150m in product development costs since
inception.
! The key reasons given by Polaris for the sub-scale topline were a) many financial institutions
were unwilling to source mission-critical technology from a vendor with a small balance sheet;
b) the company’s small sales headcount of 6 also inhibited any significant prospecting efforts.
! Management expects the company to break-even at EBITDA level in FY12, and become
EBITDA positive from FY13.
! Most of the revenues are derived on a per-user (for licensed IP assets) or per-transaction (for
hosted solutions). Hence, we believe the model has significant operating leverage.
Marginal near-term EPS dilution; adequate synergies for medium-term accretion
! Polaris has acquired an 85.3% stake in IdenTrust (the balance held by an existing investor
Zions Bancorp) for US$20m, with a US$0.8 debt on the balance sheet.
! We believe this could imply a c3% EPS dilution for FY12, assuming management guidance
on revenues and EBITDA breakeven.
! In a scenario of 25% topline growth and assuming significant non-linearity (incremental
EBITDA margin at 50%) and no additional business synergies, the transaction could be EPS
neutral in FY13. The key variable remains how much Polaris can leverage its 250-strong
sales force to grow the IdenTrust business.
Synergies (client mining and data centre) can deliver EPS accretion in FY13
! Management spoke of 10 large new BFSI accounts which come along with the acquisition.
We believe this could offer some scope for cross-selling Intellect, whose footprint remains
very limited particularly in North America and Australian markets.
! IdenTrust’s data centre’s capacity utilization is just at around 10-15%, given that it has not
scaled up business materially. Polaris plans to accelerate a cloud-based solution for Intellect
hosted on this data centre, which it had earlier planned to do after a few years. In addition, we
believe the capacity can be utilized for overall operations in the interim.
! Given that some of these synergies are low-hanging, we believe EPS accretion for FY13 is
not an stretch target.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Polaris Software Lab
Acquires IdenTrust: long-term positive
Polaris announced the acquisition of IdenTrust, an identity technology solutions
company. While marginally EPS dilutive in FY12 (RBS est. 3%), we see synergies:
cross-selling IndenTrust and Intellect products, using acquired data-centre to
offer Intellect on a hosted model and moving storage requirements.
IdenTrust is a niche technology solution provider in BFSI/Government verticals
! Polaris announced the acquisition of IdenTrust, a provider of identity technology solutions.
IdenTrust was established in 1999 by a consortium of banks to develop policies, standards
and solutions for identity authentication.
! IdenTrust largely serves the BFSI client base (90% of revenues) and counts large financial
institutions like BoFA-ML, CitiGroup and HSBC. Besides it works with several US Federal and
State Governments/agencies and non-BFSI clients like Delta Airlines and Best Buy.
! Besides the products, the company also offers an identity platform managed through its
owned data centre.
Current financials uninspiring, but model has significant operating leverage
! Management guided for IdenTrust annualized revenues of US$11m for FY12. Revenues for
the past two years have been in the US$9m-10m range. We believe the revenue base is quite
small, given that the company has spent US$150m in product development costs since
inception.
! The key reasons given by Polaris for the sub-scale topline were a) many financial institutions
were unwilling to source mission-critical technology from a vendor with a small balance sheet;
b) the company’s small sales headcount of 6 also inhibited any significant prospecting efforts.
! Management expects the company to break-even at EBITDA level in FY12, and become
EBITDA positive from FY13.
! Most of the revenues are derived on a per-user (for licensed IP assets) or per-transaction (for
hosted solutions). Hence, we believe the model has significant operating leverage.
Marginal near-term EPS dilution; adequate synergies for medium-term accretion
! Polaris has acquired an 85.3% stake in IdenTrust (the balance held by an existing investor
Zions Bancorp) for US$20m, with a US$0.8 debt on the balance sheet.
! We believe this could imply a c3% EPS dilution for FY12, assuming management guidance
on revenues and EBITDA breakeven.
! In a scenario of 25% topline growth and assuming significant non-linearity (incremental
EBITDA margin at 50%) and no additional business synergies, the transaction could be EPS
neutral in FY13. The key variable remains how much Polaris can leverage its 250-strong
sales force to grow the IdenTrust business.
Synergies (client mining and data centre) can deliver EPS accretion in FY13
! Management spoke of 10 large new BFSI accounts which come along with the acquisition.
We believe this could offer some scope for cross-selling Intellect, whose footprint remains
very limited particularly in North America and Australian markets.
! IdenTrust’s data centre’s capacity utilization is just at around 10-15%, given that it has not
scaled up business materially. Polaris plans to accelerate a cloud-based solution for Intellect
hosted on this data centre, which it had earlier planned to do after a few years. In addition, we
believe the capacity can be utilized for overall operations in the interim.
! Given that some of these synergies are low-hanging, we believe EPS accretion for FY13 is
not an stretch target.
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