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On Friday, GS Capital Partners, a private equity unit of The Goldman Sachs Group Inc. (GS - Analyst Report) and Advent International, a private equity firm, agreed upon to purchase credit-reporting firm TransUnion Corp in a $3 billion deal. However, the terms of this deal were undisclosed.
Advent and GS will acquire TransUnion from Chicago-based billionaires– Madison Dearborn Partners and the Pritzker family. The acquisition will enable the acquiring companies to retain TransUnion’s management team. The agreement is expected to be completed by early in the second quarter of 2012.
Chicago-based TransUnion is the third-largest credit reporting firm in the US. It provides credit-related information to prospective creditors and markets credit reports directly to consumers. In April 2010, the Pritzker family sold controlling interest of 51% in TransUnion to the private-equity firm Madison Dearborn Partners in Chicago. The remaining 49% stake was retained by the Pritzker family.
Bank of America Corporation (BAC - Analyst Report) and Deutsche Bank AG (DB - Analyst Report) acted as advisors to TransUnion, while Evercore Partners Inc. (EVR - Snapshot Report) advised Advent and Goldman over the deal.
Among other risks, regulatory risk was the foremost reason for TransUnion to agree to the leveraged buyout. As the credit reporting industry has come under the federal inquiry, the US Consumer Financial Protection Bureau proposed a regulation to scrutinize credit reporting companies and debt collectors. The plan entangles prime competitors, Experian Plc (EXPGY) and Equifax Inc. (EFX - Analyst Report).
For the first time, the scrutiny will include examination of books of such business. Credit agencies, like TransUnion, produce credit reports enumerating a consumer's creditworthiness for banks and other lenders. These reports are then used as decisive materials in providing a loan and determining the rate of interest to be charged from such consumers. However, production of erroneous reports on the part of such companies has led to such inquiry.
The takeover of TransUnion would relieve stakeholders who were under the purview of financial risks as the demand of reports was falling due to a slowdown in credit cards usage as well as competition faced by the company.
Penny Pritzker, the chairman of TransUnion, supported and guided the company in its accomplishments, which demonstrated a strong growth. Moreover, resources, network and expertise of Madison Dearborn Partners added fuel to the fire for TransUnion. Following the completion of the takeover, Advent and GS look forward to provide their clients with continual services and superior information, and risk management products in the US as well as in other key growth markets.
GS currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.