Recently, Moody’s Analytics, a division of Moody’s Corp. (MCO) agreed to acquire WebEquity Solutions, a developer of cloud-based loan origination software for financial institutions. Although the financial details of the deal were not revealed, the transaction is expected to close sometime in the third quarter of fiscal 2014.
Omaha-based WebEquity was founded in 1985 has approximately 70 employees. The company generated near about $15.0 million in revenues in 2013. The acquisition is expected to have a minimal impact on Moody’s earnings in the second, third as well as the fourth quarters of 2014 and full-year 2015. However, the deal is expected to be accretive to EPS in 2016.
WebEquity’s leadership in software-as-a-service offering for community banks combined with Moody’s international reach and expertise will help the latter to expand globally and enhance its risk management portfolio for banks, insurance companies and corporations.
Acquisitions have given Moody’s increased scale and cross-selling opportunities across products and vertical markets. Since 2000, Moody’s has acquired a number of companies including KMV (2002), Economy.com (2005), Wall Street Analytics (2006), Fermat International (2008), CSI (2010), Copal Partners (2011), Barrie & Hibbert (2011) and Amba Investment Services (2013).
We believe that the company will continue to pursue acquisitions, which is a good strategic fit. This will also diversify its revenue base over the long term.
On the flip side, increased focus on acquisitions could negatively impact its balance sheet in the form of a high level of goodwill and intangible assets, which totaled $886.8 million, or 20.2% of its total assets at the end of 2013. Furthermore, acquisitions add to integration risks, which may dilute earnings.
Moody’s faces stiff competition in most of the markets in which it operates. In the analytics segment, it faces competition from Dun & Bradstreet (DNB), Bloomberg, IBM (IBM), Fiserv (FISV) and many others.
Currently, Moody’s has a Zacks Rank #3 (Hold).
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