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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 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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