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Alliance Data to Divest Epsilon to Publicis for $4.4B in Cash
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Alliance Data Systems Corporation has agreed to sell its Epsilon business to Publicis Groupe for $4.4 billion in cash. Net cash proceeds, after taking into account tax obligations and fees associated with the transaction, are estimated to be $3.5 billion. The transaction is expected to be completed by the third quarter of 2019, subject to closing conditions. Shares of Alliance Data dropped 9.3% following the news release.
Sales Consideration
Valued at $4.4 billion, the sale price equates to 10X 2018 adjusted EBITDA. The net sale price equates to 8.2X trailing 2018 adjusted EBITDA.
Alliance Data intends to use the sale proceeds to buy back shares and pay debt.
Rationale Behind the Transaction
Alliance Data had acquired Epsilon Data Management, a leading provider of integrated direct marketing solutions, in 2004 for $300 million to ramp up its marketing capabilities and fortify presence in North America. Conversant, a leading global provider of data-driven marketing and loyalty solutions, was acquired by Alliance Data in a cash stock transaction in 2013 and merged with Epsilon.
Epsilon built assets in technology, data and platforms at an impressive scale. However, the business has been witnessing declining sales for some time. The top line in 2018 decreased 4% attributable to a decrease in agency and site-based display product offerings. In fact, the segment’s contribution to revenues has also declined.
Also, Epsilon’s operations differ from the Card Services business (contributing the lion’s share of Alliance Data’s total revenues). Thus, the divestiture of Epsilon is a strategic fit for the company. Alliance Data estimates the divestiture to be accretive to 2019 core EPS of $22 and be highly accretive on a GAAP basis.
On its part, Publicis can leverage its position to be an ace player of data driven personalized experiences in the wake of digital advertising. Publicis Groupe estimates double-digit accretion to bottom line as well as free cash flow from 2020. Publicis will also form a strategic partnership with Alliance Data’s remaining business.
Shares of Alliance Data have gained 9.3% year to date, underperforming the industry’s increase of nearly 24%. It estimates core EPS for 2019 to be $22, down 3% from 2018 due to the divestiture of non-strategic held-for-sale portfolios. However, it expects revenues of $8.1 billion, up 4% from 2018. Organic growth strength, a realigned portfolio and effective capital deployment should help the stock turn around.
The company currently carries a Zacks Rank #3 (Hold).
Accenture provides consulting, technology, and outsourcing services in Ireland and internationally. The company delivered positive surprise of 10.19% in the last reported quarter.
WEX provides corporate card payment solutions in North and South America, the Asia Pacific, and Europe. The company delivered positive surprise of 0.96% in the last reported quarter.
Automatic Data Processing provides business process outsourcing services worldwide. The company delivered positive surprise of 13.56% in the last reported quarter.
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Alliance Data to Divest Epsilon to Publicis for $4.4B in Cash
Alliance Data Systems Corporation has agreed to sell its Epsilon business to Publicis Groupe for $4.4 billion in cash. Net cash proceeds, after taking into account tax obligations and fees associated with the transaction, are estimated to be $3.5 billion. The transaction is expected to be completed by the third quarter of 2019, subject to closing conditions. Shares of Alliance Data dropped 9.3% following the news release.
Sales Consideration
Valued at $4.4 billion, the sale price equates to 10X 2018 adjusted EBITDA. The net sale price equates to 8.2X trailing 2018 adjusted EBITDA.
Alliance Data intends to use the sale proceeds to buy back shares and pay debt.
Rationale Behind the Transaction
Alliance Data had acquired Epsilon Data Management, a leading provider of integrated direct marketing solutions, in 2004 for $300 million to ramp up its marketing capabilities and fortify presence in North America. Conversant, a leading global provider of data-driven marketing and loyalty solutions, was acquired by Alliance Data in a cash stock transaction in 2013 and merged with Epsilon.
Epsilon built assets in technology, data and platforms at an impressive scale. However, the business has been witnessing declining sales for some time. The top line in 2018 decreased 4% attributable to a decrease in agency and site-based display product offerings. In fact, the segment’s contribution to revenues has also declined.
Also, Epsilon’s operations differ from the Card Services business (contributing the lion’s share of Alliance Data’s total revenues). Thus, the divestiture of Epsilon is a strategic fit for the company. Alliance Data estimates the divestiture to be accretive to 2019 core EPS of $22 and be highly accretive on a GAAP basis.
On its part, Publicis can leverage its position to be an ace player of data driven personalized experiences in the wake of digital advertising. Publicis Groupe estimates double-digit accretion to bottom line as well as free cash flow from 2020. Publicis will also form a strategic partnership with Alliance Data’s remaining business.
Shares of Alliance Data have gained 9.3% year to date, underperforming the industry’s increase of nearly 24%. It estimates core EPS for 2019 to be $22, down 3% from 2018 due to the divestiture of non-strategic held-for-sale portfolios. However, it expects revenues of $8.1 billion, up 4% from 2018. Organic growth strength, a realigned portfolio and effective capital deployment should help the stock turn around.
The company currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the business service sector are Accenture plc (ACN - Free Report) , WEX Inc. (WEX - Free Report) and Automatic Data Processing, Inc. (ADP - Free Report) . Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Accenture provides consulting, technology, and outsourcing services in Ireland and internationally. The company delivered positive surprise of 10.19% in the last reported quarter.
WEX provides corporate card payment solutions in North and South America, the Asia Pacific, and Europe. The company delivered positive surprise of 0.96% in the last reported quarter.
Automatic Data Processing provides business process outsourcing services worldwide. The company delivered positive surprise of 13.56% in the last reported quarter.
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>