Federal regulators have intensified probes into the firm lately. Goldman Sachs Group, Inc. (NYSE:GS) obviously believes the shares had oversold despite potential accounting problems. The short interest prior to the announcement was 39% of the float. As a result, there is one group unhappy investors. Some holders of the stock are also apparently not satisfied with the price and believe this deal undervalues the company. This has led to lawsuits based on an unfair sales process, but that has become somewhat standard with any acquisition. The deal from Goldman Sachs Group, Inc. (NYSE:GS) also allows for competing bids for Ebix within 45 days of the announcement. Management of Ebix recently stated it expected to close the deal with Goldman Sachs Group, Inc. (NYSE:GS) in the third quarter of this year.
Ebix sells software and e-commerce solutions to the insurance industry around the world. It has a series of application software products including carrier systems, agency systems, exchanges and offers customer software development for insurance and financial institutions. For the year ended in 2011, 77% of its revenues were from insurance exchanges. It has made a few acquisitions in recent years including Health Connect Systems in late 2011 and PlanetSoft, Fintechnix, and TriSytems all in mid-2012.
Troubles at Ebix
Both the SEC and IRS have taken an interest in accounting practices at Ebix Inc (NASDAQ:EBIX). The focus of the IRS investigation involves its overseas accounting, particularly in India and Singapore where it enjoys low rates. Company SEC filings note that its transfer-pricing strategy keeps its effective and cash tax rate low. Part of the short case with Ebix revolved around an end to the low tax rates the company has enjoyed in the past. In addition, lawsuits are also underway, including a shareholder class action suit which maintains that the company intentionally made misleading statements to investors.
Both the blog post on Seeking Alpha from Copperfield Research and a subsequent report from Gotham City Research reached conclusions that the shares were overvalue and found some issues with the companies accounting. While there were specifics cited in both reports, the size of the overall impact on earnings at Ebix going forward was not conclusive. While earnings could be lower, the stock went from $30 per share prior to under $15 per share at one time. The impact on the share price appeared overdone and apparently Goldman Sachs decided there was value and to take action. Since the deal was announced, the Director of Research at Gotham City stated, “We believe that should Goldman Sachs Group, Inc. (NYSE:GS) or another entity acquire Ebix, they will come to regret it.”
Conclusion
Ebix is trading at $20 per share. Following the announcement, the shares traded at over $20 per share based on speculation Goldman would have to increase their offer or another buyer would emerge. That did not happen and the shares retreated to $19.50 and have recently increased to $20 per share. While most acquisition targets trade at a slight discount to the closing price due to risks of it not closing and the time value of money, the price of Ebix Inc (NASDAQ:EBIX) shares is support by short positions closing out prior to closing. At this time, it does not appear there is much for investors to do with Ebix shares.
The article Goldman Aquires This Company At An Attractive Valuation originally appeared on Fool.com and is written by Mike Thiessen.
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