How well has TransUnion done for Goldman?

TransUnion has done well by shareholders since the credit reporting agency once owned by Chicago’s billionaire Pritzker family went public in June 2015.

Shares of Chicago-based TransUnion are up 67 percent since then, far outpacing a 12 percent rise for the Standard & Poor’s 500 Index and a 15 percent increase for financial services stocks generally. Public shareholders clearly have nothing to complain about.

Still, they might feel envious of a more privileged pair of TransUnion investors, which bought the company from the Pritzkers and Chicago buyout shop Madison Dearborn for $1.6 billion in April 2012. Five years later, a Goldman Sachs investment vehicle and Advent International have quintupled their money, blowing away the S&P’s total return of 88 percent for the same period.

Goldman and Advent wisely declined to cash out when TransUnion went public at $22.50 a share two years ago. As the stock rose however, they began taking chips off the table.

In February, TransUnion completed the fourth in a series of “secondary offerings” since March 2016. Secondary offerings follow an initial public offering, often serving as a vehicle for pre-IPO investors to liquidate holdings. Goldman and Advent have done so with gusto, selling 71.2 million shares for a total of $2.2 billion at prices ranging from $25 per share to $36.57. That alone doubles their original $1.1 billion investment.

But that’s less than half the two firms’ TransUnion haul so far. In a common private-equity maneuver, they engineered a big dividend payment to themselves shortly after acquiring the company. TransUnion borrowed $400 million and handed over $373.8 million of it as a dividend to Goldman and Advent.

And they still own 40 percent of TransUnion. At a current market price of about $38, their 72.5 million shares are worth roughly $2.8 billion.

The value of that stake will fluctuate with TransUnion’s stock price, but at this point the acquisition has generated $5.4 billion for Goldman and Advent. And that doesn’t include more than $1 million in consulting fees, or several million in fees and commissions that Goldman charged TransUnion for underwriting various stock offerings.

THE REASONS FOR SUCCESS
Clearly, Goldman and Advent are benefiting from investing in a company that’s performing very well. TransUnion sits at the epicenter of the “Big Data” revolution that’s driving demand for commercial information across a range of industries. Revenue rose a brisk 13 percent last year to $1.7 billion. Operating profit surged 52 percent to $300.5 million, for a 17.6 percent margin.

Under CEO Jim Peck, TransUnion is investing in technology and expanding beyond its traditional niche in providing credit data on potential borrowers to banks and other lenders. New ventures in health care, insurance and even residential leasing are driving growth.

Less clear is how much Goldman and Advent have contributed to TransUnion’s success. It was a growing, profitable company before the two showed up. I asked TransUnion, Goldman and Advent how the private-equity firms helped the company. All declined to comment.

They certainly deserve some credit for installing Peck and approving his successful strategy. With control over four of the 10 TransUnion board seats, Goldman and Advent play a significant role in overseeing management.

Sometimes private-equity firms bring financial discipline, strategic direction and other benefits to the companies they acquire. In other cases, they add little more than debt that helps finance the acquisition but doesn’t provide the company with capital to invest in its business. Essentially, private-equity firms buy companies with money borrowed by the acquired companies.

Goldman and Advent funded only $600 million of the $1.6 billion TransUnion acquisition with company-issued debt, an unusually low level of leverage for a private-equity buyout. Still, the acquisition and subsequent dividend put about $1 billion in new debt on TransUnion’s balance sheet.

TransUnion’s strong performance has generated extraordinary returns for all investors. But Goldman and Advent enjoyed even greater rewards, thanks to company borrowing. I’d like to think their contribution to TransUnion’s stellar results was also above average.

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