The Acquisition and Flip of Digital Insi

The Acquisition and Flip of Digital Insight

Abstract

In August that Thoma Bravo, the private equity firm, completed its acquisition of Digital Insight, a company that processes payments for financial institutions. The seller was Intuit, the financial software company, and the price was $1.025 billion. Just 124 days after completing the deal, Thoma Bravo turned around and sold the company to NCR, one of Intuit’s main rivals, and the price is $1.65 billion. (Gelles, 2013)The question is was this planned from the beginning or just a lucky win fall for Thoma Bravo? We may never know for sure.

The Acquisition and Flip of Digital Insight

In August that Thoma Bravo, the private equity firm, completed its acquisition of Digital Insight, a company that processes payments for financial institutions. The seller was Intuit, the financial software company, and the price was $1.025 billion. Just 124 days after completing the deal, Thoma Bravo turned around and sold the company to NCR, one of Intuit’s main rivals, and the price is $1.65 billion. (Gelles, 2013) The quick flip of Digital Insight earned Thoma Bravo an annual return of 299% on its brief investment this was an added USD value of 5 Million a day. (Mediations on Money Management, 2013) (Avelliana, 2013)The recent transaction has once again made Digital Insight an independent firm. (IVC Staff Reporter, 2013)

Thoma Bravo has made 26 acquisitions over the years, so it’s apparent that they are a seasoned and competent player in private equity. (Mediations on Money Management, 2013) The question is was this planned from the beginning or just a lucky win fall for Thoma Bravo? We may never know for sure.

Digital Insight is company that gives online and mobile banking solutions for banks and credit unions. Digital Insight enables financial institutions to engage their customers better by offering easy and innovative ways to manage their money. It was established in 1995 but was acquired by Intuit Inc. in February 2007. (IVC Staff Reporter, 2013) Intuit sold Digital Insight to Thoma Bravo in August 2013 then turned around and sold digital Insight to NCR Corp, Intuits main competitor just 124 days later. The sale brought questions regarding why NCR agreed to pay premium price for the company just four months after it was sold to its new owners. Would Intuit just not sell the unit to NCR, or did NCR drop the ball? (Avelliana, 2013)

Was the PE lucky that NCR surfaced as a buyer within months of acquiring Digital Insight or was it planned from the beginning? Any investor would be glad to accept $600 million on a one billion investment over a 124-day period. Thoma Bravo didn’t have to spend any time or money implementing its plan to expand Digital Insight’s business. Of course, the cash-on-cash (CoC) multiple would probably have been much greater if Thoma Bravo had built the business over time. Cash-on-cash multiple is the amount of value received for selling a business divided by how much the investor paid. In this case, the CoC multiple was 1.6 ($1.6 billion divided by $1 billion). (Mediations on Money Management, 2013)

Intuit and its investment banker should be subjected to intense review by its investors and independent board members. Intuit is a public company with extensive experience buying and selling businesses. Presumably Intuit and its banker conducted a sales process to surface buyers for Digital Insight. (Mediations on Money Management, 2013)

There are several speculations going around about why Intuit did not surface NCR as a buyer in the first place and why Thoma Bravo bought then resold Digital Insight to NCR in just 124 days for a nice profit. The speculative is used because Thoma Bravo, Digital Insight, Intuit or NCR Corp will confirm or deny anything. Some of the speculative reasons are as follows:

Intuit might have had a competitive reason for excluding NCR from its sales process. (Mediations on Money Management, 2013)
Thoma Bravo had lined up NCR before it made its bid and acted as an agent for NCR. (Mediations on Money Management, 2013)
- This does happen from time to time. Just before the credit bubble burst, Blackstone acquired a huge real estate portfolio and quickly flipped a substantial part of it at a quick profit. (Mediations on Money Management, 2013)
Intuit could have set a 30-day timetable for closing on the deal, which effectively precluded strategic buyers like NCR. (Mediations on Money Management, 2013)
- If this is true, they paid a huge price for speed. They left $600 million of value on the table. That amount of money isn’t loose change at Intuit, and its investors should be asking questions. (Mediations on Money Management, 2013)

Intuit said the deal was made because it wanted to focus on its core tax-preparation software enterprise. TurboTax, tax-preparation software manufactured by Intuit, is the company's current core business. The abnormally poor tax filing season hurt the company's income in the past six months. This led to Intuit's decision to just focus on what was essential. During the early trading, the company's stocks increased by 2.6%. However, it plunged down to 7% in the past three months. According to a statement made by Intuit, it planned to utilize the earnings from the deal by repurchasing shares. Intuit shared that it was also preparing to sell its health group. It had restored its accountancy business as a fundamental segment of its reorganization. (IVCPOST Staff Reporter, 2013)

I am leaning towards the idea that the Thoma Bravo NRC deal was the plan from the beginning and that NRC essentially paid Thoma Bravo $625M to acquire Digital Insight for them because Intuit would not sell to NRC their main Competitor.

References

Avelliana, N. J. (2013, 12 2). Private equity firm makes $625M from quick flip of Digitl Insight in 124 days. Retrieved from Venture Capital Post: http://www.vcpost.com/articles/19093/20131202/report-thoma-bravo-greatly-profits-quick-flip-ncr-corp.htm

Gelles, D. (2013, 12 2). Sale to NRC is a Quick, Profitable Fli for a Private equity Firm. Retrieved from Book Deal New York Times: http://dealbook.nytimes.com/2013/12/02/sale-to-ncr-is-a-quick-profitable-flip-for-a-private-equity-firm/?_r=0

IVC Staff Reporter. (2013, 8 2). Thoma Bravo purchases Inyuit Financial Services to recreate Digital Insight. Retrieved from Venture Capital Post: http://www.vcpost.com/articles/12962/20130802/thoma-bravo-purchases-intuit-financial-services-recreate-digital-insight.htm

IVCPOST Staff Reporter. (2013, 7 1). Intuit sells financial services enterprise worth US$1 Billion. Retrieved from Venture Capital Post: http://www.vcpost.com/articles/9964/20130701/intuit-sells-financial-services-enterprise-worth-1-billion.htm

Mediations on Money Management. (2013, 12 5). Retrieved from Blog spot.com:

http://meditationonmoneymanagement.blogspot.com/2013/12/the-flip-quick-purchase-and-sale-by-pe.html