Experian, the global information solutions company, is pleased to announce that it has agreed to acquire an initial 65% stake in Serasa, the market leading credit bureau in Brazil and operator of the fourth largest credit bureau in the world, from a consortium of Brazilian banks. The stake will increase to 70% over the next six months. The purchase price for the initial stake is R$2.32bn ($1.2bn)1, inclusive of transaction costs, net of cash, and will be funded from Experian’s existing facilities. The transaction, which is expected to be earnings neutral in the first full fiscal year of ownership and earnings enhancing thereafter, is expected to complete by the end of June.
Don Robert, Chief Executive of Experian, commented:
“The acquisition of Serasa represents a unique and transformational opportunity for Experian. It propels us to a market leading position in one of the most attractive growth markets for credit products globally, and we see significant potential as we deploy our world-class value-added products. It fits our strategic objectives of owning market-leading credit bureaux in key markets around the world and of expansion into exciting emerging economies. We are also delighted to have the continuing support of Brazil’s largest banks, as both shareholders and clients of Serasa.”
There will be a presentation today at 9.30am (UK time) to analysts and investors at the Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ. The presentation can be viewed live on the Experian website at www.experiangroup.com and can also be accessed live via a dial-in facility on 44 (0)20 8322 2180.
There will be a conference call today to discuss the transaction at 3.00pm (UK time), with a recording available later on the website.
|Don Robert||Chief Executive Officer||+44 (0)20 3042 4215|
|Paul Brooks||Chief Financial Officer|
|Nadia Ridout-Jamieson||Director of Investor Relations|
|Rollo Head||+44 (0)20 7251 3801|
Serasa is the fourth largest credit bureau in the world, and is the largest credit bureau outside the US. Consumer credit activities account for 60% of group sales and commercial activities for 40%.
Founded in 1968, Serasa owns the most extensive databases in Brazil on the credit behaviour of consumers and companies. Its credit information database includes 161 million Brazilian consumer records and c. 5 million Brazilian company records. It plays an active role in most credit and business related decisions made in Brazil on a daily basis. Its data-gathering capabilities are extensive, sourcing data from a network of Brazilian banking, commercial and judicial organisations, over 45,000 accountants and more than 5,500 notaries. Serasa’s databases include payment practices, public defaults, social and demographic information and economic and financial information.
Key products include:
Serasa’s client base is diverse, and the company is not dependent on any single industry segment.
As at December 2006 Serasa had over 110,000 direct clients. Serasa’s clients include large Brazilian companies, multinationals (many of whom are existing clients of Experian in other markets) and small and medium-sized enterprises. Examples include many of the largest banks in Brazil including Bradesco, Itaú, Unibanco, ABN Amro, Banco Santander and HSBC (the minority shareholders in Serasa), Pão de Açúcar (the largest retailer in Brazil), Telefônica, TAM (the Brazilian airline company), Organizações Globo (the largest media organisation in Brazil) and multinational companies such as American Express and Carrefour.
Revenue concentration among Serasa’s largest clients is low, with the top ten clients accounting for only 21% of sales, and the top 25 accounting for 36% of sales. Serasa also has a wide distribution across industry segments. For example, for the core consumer credit bureau activities banks and finance accounted for less than 50% of sales, with telecommunications, retail and insurance included in the balance.
The company is well established, with over 2,200 employees, operating across over 80 locations, including all Brazilian state capitals and major cities.
Brazil: an attractive growth market for credit
Experian will benefit from the growth in demand for credit in Brazil. As the credit market grows, it stimulates demand for information and tools to drive customer acquisition, account management, debt collection and other areas of credit risk, products which are core to Experian’s Credit Services activities.
Brazil is one of the largest and fastest expanding markets for credit in Latin America, in part driven by the strong and improving macroeconomic environment, and yet it is still emerging by the standards of more developed markets. Demand for both consumer credit and commercial credit is increasing rapidly, and there is considerable scope for future development of the mortgage market.
The attractions of Brazil include:
These dynamics are underpinned by the increasing attraction of Brazil as an investment market, driven by a strong GDP outlook, recent declines in the rate of inflation, declining interest rates, stable unemployment levels and a significant reduction in the country risk premium.
Significant synergy opportunities
The acquisition of Serasa provides significant opportunity to leverage Experian’s deep analytical, database and software capabilities, building on Experian’s global leadership position in provision of value-added Credit Services and Decision Analytics activities.
Serasa currently derives the majority of its sales from the acquisition part of the customer lifecycle. There are immediate synergies to be realised from the introduction of products that operate across the breadth of the credit cycle, specifically by cross-selling Experian’s solutions and tools that address account management and debt collections. Additionally, there are opportunities to introduce Experian’s fraud management tools. Examples of immediate opportunities include:
In the longer term, there is potential for additional upside opportunity from the introduction of products and tools from the wider Experian portfolio, such as Marketing Solutions, for example by building on Experian’s recent acquisition in Brazil of Informarketing and through the introduction of email marketing.
Serasa has a strong financial track record of both sales growth and margin expansion. Sales growth has been driven by the increased demand for credit and thus additional credit transactions, while Serasa has also benefited from growth in number of clients, as well as increased client penetration reflecting product innovation. Margin improvement largely reflects the growth in scale of Serasa’s activities.
In the year to December 2006 Serasa generated sales of R$607m ($313m), up 22% at constant currency, and EBIT (Brazilian GAAP) of R$138m ($71m), up 28%.
In the year to December 2007 Serasa is expected to generate sales growth in the region of 20%. Margins are expected to improve reflecting operational gearing, before estimated integration costs in the year of R$15m. In addition, due diligence indicates that EBIT will be positively impacted by the restatement from Brazilian GAAP to IFRS. Preliminary estimates for the incremental benefit to EBIT are in the region of $R20m. The IFRS adjustments are expected principally to reflect the differential treatment of capitalisation of data costs. These accounting adjustments do not impact the acquisition assessment.
The acquisition is expected to be neutral to benchmark earnings2 in the first full year of ownership (to March 2009) and enhancing thereafter. In addition, Experian expects a cash benefit from tax relief on the goodwill generated by this acquisition of R$70m-R$100m per annum for the next seven years (based on 100% stake).
As at 31 December 2006 Serasa had gross assets of R$321m.
Experian’s stake in Serasa was acquired from Bradesco, Itaú, Unibanco, ABN Amro, Banco Santander and HSBC.
Financial information is based on audited financial statements, unless otherwise stated. Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements.