Private Equity Deal Example: Analysis of Stone Point Capital
Stone Point Capital to acquire Core Logic:
- $7.3 bn
- 12 x EBITDA
- All-cash deal
- Industry: Real Estate research and Consulting Services
Target Overview
Core Logic is a leading global property information, analytics, and data-enabled company and provides services to the Americas, Europe, and Asia pacific. It operates in two segments: Property Intelligence and Risk Management Solutions, Underwriting and Workflow Solutions; with roughly 75% in market share for property and Tax solutions, 60% in Flood Solutions, and 70% in Multiple Listing Solutions for real estate brokers.
- Revenue CAGR of 2.8%
- EBITDA CAGR of 16%
- EBIT CAGR 10.9%
- Net Income CAGR 42.3%
Main competitors include:
- Black Knight: EBITDA Multiple of 25x and EBITDA margin 45%
- Costar Group: EBITDA Multiple 75x and EBITDA margin 30%
Buyer Overview
Stone Capitala PE firm focused on Capital raising, M&A sourcing, Exit strategy, and Structuring. Total AUM $ 26 bn.
Industry Overview & Risks
Average EBITDA multiple of 11x, CLGX’s multiple is above average which indicates the deal was fairly valued.
- Housing markets have been booming due to low mortgage rates and thus buying and refinancing has increased demand for real estate technology.
- High inflation will increase the value of properties in the long run as they act as a good inflation hedge.
- The industry remains sensitive to innovation where R&D is likely to maintain profitability, accurate understanding of housing markets and will require constant data analysis. CLGX has over 50 patents.
- With the new Biden administration, we should expect mortgage rates to rise in upcoming years which may lead to less demand for property. Also, data privacy regulations may restrict CLGX’s access and therefore deep AI technology.
- Biden’s tax increase plan may also decrease demand for properties given individuals with over $400k would pay more tax.
Competition between buyers in the US housing market is high and it is crucial for intelligence agencies like CLGX to meet these expectations. It is likely that there will be a sustained increase in CLGX’s technology. However, once the economy stabilizes from COVID-19, the housing market may lose its current boom and other competitors like Zillow group may aggressively file for patents to achieve more market share. CLGX may be challenged by the spike in property prices and potential hike in rates but the long-term prospects are positive.