Mercer Capital's Value Focus: FinTech Industry | 4Q 2014 | Focus: 2014 FinTech IPOs and M&A Overview

Mercer Capital's Value Focus: FinTech Industry | 4Q 2014 | Focus: 2014 FinTech IPOs and M&A Overview

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  VALUE FOCUS FinTech Industry Q1:Technology Q2: Solutions Q3: Payments Q4: 2014 IPOs and M&A Overview 2014 www.mercercapital.com Special Supplement | Fairness Opinions: Evaluating a Buyer’s Shares from the Seller’s Perspective FinTech Industry Overview Public Market Indicators 1 Mercer Capital FinTech Indices vs. SP 500 1 Median Total Return 1 Valuation Multiples 2 FinTech Performance EBITDA Margin 2 FinTech Valuation Multiples EV / Revenue 2 FinTech Valuation Multiples EV / EBITDA 2 2014 FinTech IPOs and MA Overview 2014 FinTech IPOs 3 FinTech MA Overview 5 Venture Capital Activity Overview 6 Case Study: Banno, LLC 9 Publicly Traded FinTech Companies Payments 12 Solutions 14 Technology 16 About Mercer Capital 17 FOCUS 2014 IPOs and MA Overview
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  © 2015 MercerCapital // www.mercercapital.com 1 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 80 ! 85 ! 90 ! 95 ! 100 ! 105 ! 110 ! 115 ! 120 ! January2,2014=100! MCM FinTech Indices vs. SP 500 for LTM Period FinTech - Solutions! SP 500! FinTech - Payments! FinTech - Technology! Median Total Return as of December 31, 2014 Segment December 4Q14 2014(Y) FinTech - Payments -0.5% 15.9% 12.0% FinTech - Solutions 1.1% 9.5% 10.4% FinTech - Technology 1.5% 6.5% 1.0% SP 500 -0.3% 4.9% 14.7% Source: SNL Financial Public Market Indicators FinTech outperformed broader markets in the fourth quarter of 2014 but has underperformed broader markets for the full year 2014. FinTech returns lagged broader markets through the first three quarters of 2014. • Small-cap stocks, of which a number of FinTech companies would be classified, have generally underperformed both broader markets as well as large- and mid-caps in 2014 • 17 FinTech IPOs occurred in 2014 and the median return for this group was 12.2% since IPO Market performance of FinTech companies has gyrated as investors weigh: • Threats of new entrants, including other technology companies and traditional financial institutions • Continued technological change • Emerging risks including regulatory and business model Mercer Capital FinTech Indices vs. SP 500 for LTM Period Source: SNL Financial
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  © 2015 MercerCapital // www.mercercapital.com 2 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Valuation Multiples as of December 31, 2014 Segment Price/ LTM EPS Price / 2015 (E) EPS Price / 2016 (E) EPS Ent'p Value / LTM EBITDA Ent'p Value / FY15 (E) EBITDA Ent'p Value / FY16 (E) EBITDA Ent'p Value / LTM EBIT Ent’p Value / LTM Revenue Dividend Yield FinTech - Payments 27.7 23.8 18.5 13.0 11.2 10.0 19.3 2.3 0.0 FinTech - Solutions 29.9 25.0 21.2 16.7 11.6 10.2 21.5 3.0 0.0 FinTech - Technology 24.4 28.2 24.6 15.6 11.2 10.2 28.3 4.0 0.0 Source: SNL Financial Consistent with recent historical growth patterns and outlook near-term, FinTech companies are generally priced at a premium to the broader markets with the median SP 500 company priced at 19.6x forward earnings at year-end 2014. FinTech Performance EBITDA Margin (LTM) FinTech Valuation Multiples EV / Revenue (LTM) FinTech Valuation Multiples EV / EBITDA (LTM) 0.0%! 5.0%! 10.0%! 15.0%! 20.0%! 25.0%! 30.0%! 35.0%! 0.00 ! 5.00 ! 10.00 ! 15.00 ! 20.00 ! 25.00 ! 0.00 ! 0.50 ! 1.00 ! 1.50 ! 2.00 ! 2.50 ! 3.00 ! 3.50 ! 4.00 ! 4.50 ! 5.00 ! Payments Technology Solutions Payments Technology Solutions Payments Technology Solutions Source: SNL Financial and Capital IQ Source: SNL Financial and Capital IQ Source: SNL Financial and Capital IQ
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  © 2015 MercerCapital // www.mercercapital.com 3 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 • While the Lending Club and OnDeck IPOs in 4Q14 brought significant attention to FinTech and specialty/alternative lending, other FinTech sectors saw IPOs as well • Insurance/Healthcare Financial Technology led the way with 6 IPOs • While none of the companies reported positive net income in 2014, the stock price performance since IPO was positive for the majority with a median return on 12.2% • 8 FinTech companies achieved “unicorn states” with a market cap greater than $1 BN at year-end 2014 • The highest proceeds raised at IPO were for IMS Health Holdings (IMS) and Lending Club (LC) with both raising over $1 BN 2014 FinTech IPOs Industry Articles of Note Three ways bank technology will fuel growth in 2015 Community Bank Insight Ross Furze http://mer.cr/1v653MN Noncompete Agreements for Section 280G Compliance Mercer Capital’s Financial Reporting Blog Lucas Parris http://mer.cr/1CBYrgR Fintech Key Trends 2014: Top 50 Investments Medium.com United Ventures http://mer.cr/1vwvSPX What 2015 holds in store for fintech, retail and smart cities TechWorld Eric Van der Kleij http://mer.cr/1ukRbTJ 7 Tips for FinTech entrepreneurs when interacting with VC investors StartupBootcamp Blog Pascal Bouvier http://mer.cr/1IjG1VN Small Bank in Kansas is a Financial Testing Ground DealBook Nathaniel Popper http://mer.cr/16r3vqg
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  © 2015 MercerCapital // www.mercercapital.com 4 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Ticker Name 12/31/14 Price IPO Price IPO Date Gross Proceeds % Return Since IPO Mkt Cap ($M) Ent Val ($M) Revenue LTM EBITDA Net Inc. FinTech Niche Description BRDR Borderfree, Inc. $8.96 $16.00 3/20/14 $92,000 -44.0% 285 163 124,660 2,027 (1,794) Payments Provides technology and services platform to support int'l ecommerce CAFN Cachet Financial Solutions, Inc. $1.35 $1.50 7/9/14 $6,750 -10.0% 23 26 2,347 (9,016) (15,018) Banking Technology Cloud-based, SaaS technology provider serving the financial services industry CSLT Castlight Health, Inc. $11.70 $16.00 3/13/14 $204,240 -26.9% 1,056 874 36,250 (85,053) (86,229) Insurance/HC Tech. Cloud-based service that enables employers and employees to enhance healthcare offerings CNXR Connecture, Inc. $9.01 $8.00 12/11/14 $53,080 12.6% 195 216 81,711 NA NA Insurance/HC Tech. Web-based consumer shopping, enrollment and retention platform for health insurance distribution HQY HealthEquity, Inc. $25.45 $14.00 7/30/14 $146,510 81.8% 1,393 1,286 80,146 14,851 (415) Insurance/HC Tech. A health savings custodians that offers an innovative technology platform IMPR Imprivata, Inc. $13.00 $15.00 6/24/14 $86,250 -13.3% 309 232 89,585 (14,742) (22,012) Insurance/HC Tech. Provider of authentication and access management solutions for the healthcare industry IMS IMS Health Holdings, Inc. $25.64 $20.00 4/3/14 $1,495,000 28.2% 8,544 11,947 2,641,000 373,000 (189,000) Insurance/HC Tech. IT services provider for healthcare industry LC Lending Club $25.30 $15.00 12/10/14 $1,000,500 68.7% 9,144 11,662 NA NA (23,666) Specialty Fin/Alt Lender Peer to peer lending technologyplatform MTBC Medical Transcription Billing, Corp. $2.34 $5.00 7/22/14 $20,400 -53.2% 26 26 14,182 (1,328) (3,848) Insurance Technology IT provider of web-based solutions and related business services to healthcare providers ONDK OnDeck $22.43 $20.00 12/16/14 $230,000 12.2% 1,484 1,812 NA NA NA Specialty Fin/Alt Lender Online platform for small business lending PAYC Paycom Software, Inc. $26.33 $15.00 4/14/14 $114,626 75.5% 1,417 1,426 137,169 14,872 NA Payroll/Admin. Solutions Human capital management provider that offers a cloud-based software solution PCTY Paylocity Holding Corporation $26.11 $17.00 3/18/14 $137,729 53.6% 1,314 1,241 115,835 (5,967) (13,442) Payroll/Admin. Solutions Provider of cloud-based payroll and human capital management software solutions QTWO Q2 Holdings, Inc. $18.84 $13.00 3/19/14 $116,025 44.9% 645 555 72,650 (16,708) (21,373) Banking Technology Provider of secure, cloud-based virtual banking solutions TNET TriNet Group, Inc. $31.28 $16.00 3/26/14 $276,000 95.5% 2,177 2,629 2,071,525 176,071 8,986 Payroll/Admin. Solutions Provider of a human resources solution for small to medium-sized busi- nesses, or SMBs UPLD Upland Software, Inc. $9.56 $12.00 11/5/14 $46,154 -20.3% 145 222 60,233 (11,102) (24,006) Payroll/Admin. Solutions Provider of cloud-based Enterprise Work Management software WK Workiva Inc. $13.40 $14.00 12/11/14 $100,800 -4.3% 530 519 106,134 NA (33,857) Payments Provides a cloud-based platform for enterprises to collect, manage, and analyze business data YDLE Yodlee, Inc. $12.20 $12.00 10/2/14 $84,129 1.7% 357 464 84,257 4,730 (1,321) Payments Technology and applications platform provider for digital financial services Median $114,626 12.2% 645 555 84,257 (1,328) (18,196) Source: SNL Financial and Capital IQ 2014 FinTech IPOs Market Pricing as of December 31, 2014
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  © 2015 MercerCapital // www.mercercapital.com // Source: SNL Financial 5 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 FinTech MA Overview 2011–2014 FinTech MA Overview 2014 vs. 2013 • FinTech MA activity was up in 2014 vs. 2013 • Increase in deal activity was spread across all industry niches ○○ 2014 activity was highest in the payments and healthcare/insurance solutions niches • FinTech transaction pricing multiples were also up in 2014 • Cash continued to be the primary form of consideration • Consideration consisting of stock and earnouts (i.e., additional payments upon reaching certain future performance targets) increased in 2014 Deal Activity Target in Following FinTech Industry Niche Median Pricing Metrics Deal Structure 2014 2013 % Change # of Deals 169 115 47% Median Deal Value ($M) $48.1 $37.0 30% 2014 2013 % Change Deal Value / Sales 2.62 1.50 75% Enterprise Value / EBITDA 12.00 10.63 13% % of Total 2014 2013 All Cash 47% 70% Majority Cash 71% 80% Stock Consideration 11% 6% Earnout Consideration 22% 6% 2014 2013 % Change Payment Processors 38 28 Payroll Administrative Solutions 4 1 Payments Total 53 37 43% Bank 6 10 Investments 18 17 Insurance/Healthcare Solutions 44 23 Technology Total 68 50 36% Outsourcing 28 16 Processing Software Hardware 15 9 Financial Media Content 16 11 Solutions Total 59 36 64% $0.0 ! $10.0 ! $20.0 ! $30.0 ! $40.0 ! $50.0 ! $60.0 ! 0! 20! 40! 60! 80! 100! 120! 140! 160! 180! 2011! 2012! 2013! 2014! MedianDealValue($M)! #ofDeals! Median Deal Value ($M)! # of Deals!
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  © 2015 MercerCapital // www.mercercapital.com 6 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 © 2014 Mercer Capital // www.mercercapital.com 6 FinTech Venture Capital Activity Overview Company Amount ($M) Company Description AvantCredit 225 Online lending company that provides access to competitive, personal loans Mozido 185 A cloud platform mobile payments and retail engagement solutions provider Square 150 Provider of mobile POS tools Strategic Funding Source 110 Offers financing solutions to a wide range of small businesses with technology and insight Square 100 Provider of mobile POS tools Revel Systems 75 Software company that provides iPad POS systems for businesses Credit Karma 75 Online provider individual credit score data IEX 75 Online trading venue Stripe 70 Payment processor that allows businesses to accept payments over the internet Cardlytics 70 Provides card-linked marketing services in the U.S. and abroad Wealthfront 64 Provides automated investment services Radius 55 Provides cloud-based integrated marketing tools for businesses to analyze markets Blue Snap 50 Provides online payment solutions for e-commerce A summary of selected FinTech venture capital financing activity in the fourth quarter of 2014. Covers selected financing rounds larger than $10MM. Source: Finovate Emails (which cite themselves, Crunchbase, FT Partners, and WSJ) Company Websites
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  © 2015 MercerCapital // www.mercercapital.com 7 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 FinTech Venture Capital Activity Overview (cont.) Company Amount ($M) Company Description Personal Capital 50 Online software company that provides tools to manage personal finances Credorax 40 Digital merchant acquirer that specifically focuses on e-commerce and m-commerce arenas in the U.S. and abroad Ping Identity 35 Provides identity and access management solutions that give customers and employees one-click access to any application from any device Transverse 25 Provides activity or usage based billing models to businesses BoomTown 20 Online lead generation and management system for real estate brokers and teams iMatchative 20 A cloud-based network that blends behavioral and traditional financial statis- tics and analysis in order to help investors and funds Raise Marketplace 18 Online market place to sell gift cards for cash and buy discounted gift cards One Inc. 17 Database technology company that delivers enterprise level applications that serve the entire insurance lifecycle Kensho 15 Financial analytics company that allows institutions to mine big data FastPay 15 Provides liquidity and workflow solutions to media businesses BitNet Technologies 15 Bitcoin payments processor Quantopian 15 Provides a platform for individuals to build, test, and execute trading algorithms Zafin 15 Provider of relationship banking software solutions to the financial services industry A summary of selected FinTech venture capital financing activity in the fourth quarter of 2014. Covers selected financing rounds larger than $10MM. Source: Finovate Emails (which cite themselves, Crunchbase, FT Partners, and WSJ) Company Websites
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  © 2015 MercerCapital // www.mercercapital.com 8 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 FinTech Venture Capital Activity Overview (cont.) Company Amount ($M) Company Description InstaMed 15 Simplifies all healthcare clearinghouse and payment transaction for providers and payors, all in one place Tipalti 13 Provides automated complex global payments services Credit Suppliers 13 Offers a lending, tracking, payment control program for the construction industry Technisys 13 Offers omnichannel digital banking solutions to banks Taulia 13 Provides cloud-based invoice, payment and dynamic discounting management solutions Robin Hood 13 Stock brokerage company that allows customers to buy and sell U.S. listed stocks and ETFs with zero commission Orchard Platform 12 Provides marketplace and peer to peer lending services Recurly 12 A leading pay-as-you-go subscription billing platform Payoff 12 Financial services company that designs products to help people pay off their credit card debt Narrative Science 10 Software company that turns numerical data into a written narrative Cognical 10 Provides integrated alternative financing for online shoppers Dwolla 10 Online personal payment network and provider Centage 10 Provider of automated budgeting and planning software solutions for small to medium-sized organizations A summary of selected FinTech venture capital financing activity in the fourth quarter of 2014. Covers selected financing rounds larger than $10MM. Source: Finovate Emails (which cite themselves, Crunchbase, FT Partners, and WSJ) Company Websites
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  © 2015 MercerCapital // www.mercercapital.com 9 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Venture Capital Case Study “We have not done a lot of acquisitions in recent years since 2010. We had not done an acquisition until March of this year (2014). We did have an opportunity to acquire a small company in Cedar Falls, Iowa called Banno.” “Banno, brought us several products, a website design and hosting business, some innovative mobile banking solu- tions and a responsive online advertising solution to help our banks market their products to their – to their financial institution customers.” “So I’m very pleased to add this young energetic and innovative group in Iowa to the Jack Henry team.” Quotes from Jack Prim, CEO of Jack Henry Associates, Inc. Transcript from Jack Henry Associates Inc. Annual Shareholders Meeting November 13, 2014
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  © 2015 MercerCapital // www.mercercapital.com 10 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Venture Capital Case Study Banno, LLC Banno develops technology solutions for financial institutions, including websites and mobile applications. Banno products include: • Grip, a mobile banking tool with account aggregations, mer- chant details, ATM search, photo receipt upload, billpay, and remote deposit capture • Kernel, a system that segments online visitors and delivers tailored advertisements that are product specific based on their interest Timeline Significant Corporate Events 2006-2009 • Company founded in Iowa in 2006 • Originally, company provided technology and advertising services for larger non-financial companies • Raised capital of $500,000 from local Iowa real estate developers at the beginning of 2008 • Renamed company Banno • In 2009, company pivoted when revenues from services to banks outpaced other professional services 2009-2013 • Began selling a product that let banks offer customers a way to customize debit cards with photos, evolved later to be named Cre8 My Card • Debuted Grip, which offers mobile personal financial management, at FinovateFall in 2011 • The Iowa Economic Development Authority matched a $1 million private loan from one of Ban- no’s lenders for an additional $2 million total funding in 2012 • Reported in 2013 to have approximately 60 programmers, sales, and IT staff; $4 million in revenue; and 400 bank customers • Debuted Kernel, which delivers tailored advertisements that are product specific based on customer interest across several electronic channels at FinovateSpring in 2013 March 2014 • Jack Henry, a global leader in payment technology and solutions, acquired Banno for $28 million in cash • Pricing multiples weren’t disclosed but Banno was reported to have a revenues of $848 thousand and a net loss of $1.1 million for the four month period from acquisition date to June 30, 2014 (based upon JKHY’s Form 10-K for FY ended 6/14) • This implies a price/ annualized revenue multiple of 11x Sources: Various articles mentioning Banno, SNL Financial, and JKHY public filings, including: • www.finovate.com • “Wade Arnold: Coder in the Cornfield” AmericanBanker, January 1, 2013, Sean Sposito
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  © 2015 MercerCapital // www.mercercapital.com 11 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Venture Capital Case Study Banno, LLC 1. Banno’s ability to operate and exit successfully from a non-traditional market is encouraging for other FinTech startups • Banno was able to successfully attract talent, capital, and financial services customers while operating from Iowa • Given the significant amount of capital and resources required to grow FinTech compa- nies, Banno’s template of establishing operations in a lower-cost market and utilizing local funding incentives (such as the use of the Iowa Economic Development Authority) could be a nice path to follow for others • Strength of partnerships are typically huge for FinTech startups but may have been more important for Banno given its location as one article noted certain bank executives’ trep- idation at using a small company in Iowa for technology services. Banno’s partners included Jack Henry (JKHY) and Deluxe (DLX), two larger FinTech players 2. As FinTech continues to evolve, Banno provides a solid example of the benefits from combining technology, marketing, and financial services expertise • Kernel, which sends customers tailored advertisements based on customer interests, offers a way for banks to maintain and enhance their customer relationship in a digital environment. Historically, these types of banking activities have largely occurred offline. Products like Kernel that allow banks to enhance their customer relationships in a digital environment should continue to attract interest from bankers. 3. Take advantage of industry events for new product launches • Two of Banno’s key products (Grip and Kernel) were both debuted at Finovate events, which helped those products garner additional press/attention/credibility • This gave Banno a large stage to debut things and again helped to offset their smaller location and also the cost of a separate event for those product launches Key Takeaways
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  Mercer Capital’s ValueFocus: FinTech Industry Fourth Quarter 2014 © 2015 Mercer Capital // www.mercercapital.com // Source: SNL Financial and Capital IQ 12 Publicly Traded Payments Companies Ticker Name 12/31/14 Price Market Cap ($MM) Ent’p Val ($MM) Price / Earnings Ent’p Value / EBITDA Ent’p Value/LTM Yield LTM LTM FY15E FY16E LTM FY15E FY16E EBIT Rev. Revenue EBITDA Margin Net Inc. Payment Processors ADS Alliance Data Systems Corp. 286.05 18,313 29,133 32.88 23.83 20.00 20.58 14.76 13.12 25.65 nm 0.0% NA 1,415,632 NM 556,954 HAWK Blackhawk Network Holdings, Inc. 38.80 2,056 2,026 39.91 30.55 24.02 16.35 10.23 8.53 25.25 1.55 0.0% 1,307,266 123,889 9.5% 51,523 CATM Cardtronics, Inc. 38.58 1,718 2,172 44.34 27.76 17.34 10.89 7.57 6.98 23.88 2.14 0.0% 1,012,893 199,400 19.7% 38,737 DLX Deluxe Corporation 62.25 3,092 3,585 15.48 14.29 13.42 8.97 8.17 7.70 10.74 2.14 1.8% 1,674,100 399,500 23.9% 199,800 EEFT Euronet Worldwide, Inc. 54.90 2,888 2,817 35.41 24.73 20.22 14.92 9.93 9.64 23.53 1.79 0.0% 1,577,601 188,753 12.0% 81,556 EVTC EVERTEC, Inc. 22.13 1,726 2,375 22.97 18.14 15.05 13.61 12.18 11.41 22.03 6.59 1.8% 360,285 174,569 48.5% 75,109 FLT FleetCor Technologies, Inc. 148.71 12,467 13,517 38.09 29.02 24.50 23.03 13.65 12.00 27.37 12.54 0.0% 1,078,194 586,864 54.4% 327,287 GCA Global Cash Access Holdings, Inc. 7.15 469 458 19.87 18.33 11.44 7.23 3.28 1.87 10.27 0.79 0.0% 581,454 63,323 10.9% 23,593 GPN Global Payments Inc. 80.73 5,460 7,079 21.26 19.64 17.51 12.45 11.67 10.82 16.29 2.63 0.1% 2,692,615 568,439 21.1% 256,893 GDOT Green Dot Corporation 20.49 1,066 446 nm 17.22 17.36 4.32 2.74 2.50 6.74 0.74 0.0% 601,508 103,102 17.1% NA HPY Heartland Payment Systems, Inc. 53.95 1,954 2,428 27.50 22.16 18.74 11.34 11.63 10.25 19.98 1.09 0.6% 2,237,148 214,126 9.6% 71,055 ONE Higher One Holdings, Inc. 4.21 201 271 11.72 11.23 15.59 5.49 4.45 5.71 8.68 1.23 0.0% 219,666 49,355 22.5% 17,116 MA MasterCard Incorporated 86.16 99,330 94,553 27.46 24.62 20.49 17.45 16.02 13.92 18.54 9.98 0.6% 9,473,000 5,420,000 57.2% 3,617,000 MGI MoneyGram International, Inc. 9.09 491 1,640 5.77 19.98 12.54 8.45 6.31 6.35 11.73 1.10 0.0% 1,491,100 194,200 13.0% 85,000 PLPM Planet Payment, Inc. 2.08 116 108 95.54 nm nm 22.66 8.81 6.57 62.78 2.33 0.0% 46,614 4,784 10.3% 1,215 TSS Total System Services, Inc. 33.96 6,313 7,509 19.76 19.46 17.24 nm 9.87 9.10 nm 3.07 1.2% 2,446,877 NA NM 319,564 JTPY Univeral Business Payment Solutions 2.14 30 57 nm nm nm nm 17.51 15.14 nm 1.78 0.0% 31,741 (507) -1.6% (8,473) VNTV Vantiv, Inc. 33.92 4,957 8,436 49.79 27.14 22.46 16.09 10.73 9.79 31.10 3.51 0.0% 2,401,773 524,414 21.8% 99,547 PAY VeriFone Systems, Inc. 37.20 4,216 4,886 nm 86.51 56.36 22.60 13.52 11.38 1,888.06 2.61 0.0% 1,868,874 216,229 11.6% (38,130) V Visa Inc. 262.20 162,106 157,526 36.48 25.26 21.86 nm 16.42 14.64 nm 12.18 0.6% 12,929,000 NA NM 4,444,000 WU Western Union Company 17.91 9,360 11,410 11.64 11.19 10.60 8.37 8.09 7.97 10.41 2.03 2.8% 5,619,200 1,363,400 24.3% 804,300 WEX WEX Inc. 98.92 3,835 4,434 20.31 21.60 18.30 11.57 11.86 10.19 14.04 5.63 0.0% 788,066 383,075 48.6% 188,786 XOOM Xoom Corporation 17.51 673 514 203.95 152.26 53.88 60.78 20.28 15.77 116.16 3.49 0.0% 147,317 8,459 5.7% 3,301 Median 2,887.69 2,817.11 27.48 22.16 18.30 13.03 10.73 9.79 21.01 2.24 0.0% 1,399,183 199,400 18.4% 83,278
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  Mercer Capital’s ValueFocus: FinTech Industry Fourth Quarter 2014 © 2015 Mercer Capital // www.mercercapital.com // Source: SNL Financial and Capital IQ 13 Publicly Traded Payments Companies Ticker Name 12/31/14 Price Market Cap ($MM) Ent’p Val ($MM) Price / Earnings Ent’p Value / EBITDA Ent’p Value/LTM Yield LTM LTM FY15E FY16E LTM FY15E FY16E EBIT Rev. Revenue EBITDA Margin Net Inc. Payment Software/Hardware CVG Convergys Corporation 20.37 2,044 2,208 40.72 13.67 10.95 7.77 5.72 5.31 15.86 0.84 1.3% 2,618,900 284,100 10.8% 50,200 NSP Insperity, Inc. 33.89 859 633 35.18 25.58 nm 10.12 7.98 7.08 15.30 0.27 2.1% 2,319,056 62,546 2.7% 24,403 PAYX Paychex, Inc. 46.17 16,766 16,237 25.78 24.96 22.82 15.00 13.94 12.96 16.65 6.27 3.2% 2,591,200 1,082,200 41.8% 650,300 WDAY Workday, Inc. 81.61 15,261 13,916 nm nm nm nm 2,420.16 306.94 nm 19.78 0.0% 703,453 (160,632) -22.8% (244,498) Median 15,261 13,916 31.57 25.27 22.82 12.56 13.94 12.96 16.26 3.40 2.1% 2,591,200 284,100 10.8% 50,200
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  Mercer Capital’s ValueFocus: FinTech Industry Fourth Quarter 2014 © 2015 Mercer Capital // www.mercercapital.com // Source: SNL Financial and Capital IQ 14 Publicly Traded Solutions Companies Ticker Name 12/31/14 Price Market Cap ($MM) Ent’p Val ($MM) Price / Earnings Ent’p Value / EBITDA Ent’p Value/LTM Yield LTM LTM FY15E FY16E LTM FY15E FY16E EBIT Rev. Revenue EBITDA Margin Net Inc. Outsourced ACXM Acxiom Corporation 20.27 1,561 1,756 nm 675.67 31.43 nm 8.77 7.80 215.43 1.69 0.0% 1,039,575 NA nm (23,304) CSC Computer Sciences Corporation 63.05 8,858 9,750 14.47 14.01 12.49 4.62 4.51 4.39 9.10 0.76 1.4% 12,874,000 2,111,000 16.4% 612,000 CSGS CSG Systems International, Inc. 25.07 861 915 23.29 18.43 23.00 7.34 5.81 5.44 11.89 1.22 2.5% 751,286 124,595 16.6% 36,959 EFX Equifax Inc. 80.87 9,752 11,227 28.18 23.72 18.84 13.83 12.25 11.47 18.29 4.70 1.2% 2,390,300 811,700 34.0% 346,100 EXLS ExlService Holdings, Inc. 28.71 943 777 23.09 19.51 16.60 10.52 7.85 6.46 16.27 1.59 0.0% 488,115 73,881 15.1% 40,843 FICO Fair Isaac Corporation 72.30 2,321 2,834 25.15 24.97 18.93 15.28 13.74 12.67 18.53 3.57 0.1% 794,192 185,473 23.4% 92,309 FIS Fidelity Nat'l Info. Services, Inc. 62.20 17,649 22,149 31.76 21.01 19.47 12.97 10.68 9.97 20.43 3.51 1.5% 6,303,200 1,707,200 27.1% 555,700 FISV Fiserv, Inc. 70.97 17,314 20,823 22.96 22.28 19.34 12.90 11.86 11.07 17.21 4.11 0.0% 5,066,000 1,614,000 31.9% 754,000 IL IntraLinks Holdings, Inc. 11.90 668 701 nm nm nm 28.01 17.12 nm nm 2.79 0.0% 251,020 25,048 10.0% (19,252) INTU Intuit Inc. 92.19 26,323 25,233 31.56 52.98 30.13 16.86 19.68 14.15 19.47 5.54 0.9% 4,556,000 1,497,000 32.9% 834,000 PRGX PRGX Global, Inc. 5.72 156 130 nm 34.67 16.34 147.09 5.47 4.28 nm 0.77 0.0% 169,377 881 0.5% (11,778) SSNC SSC Technologies Holdings, Inc. 58.49 4,894 5,420 40.31 33.14 29.54 18.29 15.17 13.85 27.59 7.23 0.0% 749,652 296,304 39.5% 121,401 TW Towers Watson Co. 113.17 7,936 7,630 22.51 21.56 19.60 10.81 10.42 9.63 14.42 2.15 0.5% 3,550,080 705,689 19.9% 352,644 Median 4,894 5,420 24.22 23.00 19.41 13.40 10.68 9.80 18.29 2.79 0.1% 1,039,575 500,997 21.6% 121,401
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  Mercer Capital’s ValueFocus: FinTech Industry Fourth Quarter 2014 © 2015 Mercer Capital // www.mercercapital.com // Source: SNL Financial and Capital IQ 15 Publicly Traded Solutions Companies Ticker Name 12/31/14 Price Market Cap ($MM) Ent’p Val ($MM) Price / Earnings Ent’p Value / EBITDA Ent’p Value/LTM Yield LTM LTM FY15E FY16E LTM FY15E FY16E EBIT Rev. Revenue EBITDA Margin Net Inc. Payroll/Administration ACIW ACI Worldwide, Inc. 20.17 2,318 3,211 32.38 23.73 19.03 14.26 10.66 10.02 22.66 3.18 0.0% 1,009,087 225,174 22.3% 71,585 EPAY Bottomline Technologies (de), Inc. 25.28 1,009 976 nm nm nm 24.92 14.28 12.61 297.31 3.02 0.0% 323,499 39,159 12.1% (11,021) BR Broadridge Financial Solutions, Inc. 46.18 5,542 5,752 21.47 19.40 17.39 nm 9.95 9.24 14.08 2.19 2.1% 2,622,600 NA nm 258,200 CDK CDK Global, Inc. 40.76 6,547 7,142 nm 33.55 27.54 nm 16.66 14.42 nm nm nm NA NA nm NA DBD Diebold, Incorporated 34.64 2,239 2,523 52.03 17.32 13.97 17.34 9.57 8.38 35.25 0.84 3.3% 3,001,224 145,487 4.8% 43,027 KFX Kofax Limited 7.03 615 556 65.89 54.08 24.24 19.51 11.62 9.11 38.78 1.86 0.0% 298,602 28,497 9.5% 9,339 NCR NCR Corporation 29.14 4,907 8,261 13.78 13.55 11.12 9.65 8.04 7.32 14.10 1.27 0.0% 6,493,000 856,000 13.2% 356,000 NTWK NetSol Technologies, Inc. 4.17 40 49 nm nm nm nm nm nm nm 1.29 0.0% 37,845 (6,309) -16.7% (11,981) PEGA Pegasystems Inc. 20.77 1,586 1,357 55.23 30.54 27.88 20.56 11.73 10.34 31.58 2.36 0.4% 574,462 66,001 11.5% 28,712 WK Workiva Inc. 13.40 530 519 nm nm nm nm nm nm nm 4.89 nm 106,134 NA nm (33,857) YDLE Yodlee, Inc. 12.20 357 464 nm nm 95.88 98.14 47.89 32.15 345.91 5.51 nm 84,257 4,730 5.6% (1,321) Median 1,586 1,357 42.21 23.73 21.64 19.51 11.62 10.02 33.42 2.28 0.0% 448,981 52,580 10.5% 19,026 Content RATE Bankrate, Inc. 12.43 1,298 1,419 nm 34.53 25.37 20.34 8.69 7.59 152.02 2.78 0.0% 510,575 69,763 13.7% (8,707) CLGX CoreLogic, Inc. 31.59 2,835 4,108 62.33 24.58 17.50 14.13 9.98 9.02 25.59 3.03 0.0% 1,354,215 290,703 21.5% 45,483 CSGP CoStar Group, Inc. 183.63 5,940 5,844 135.79 110.29 69.56 41.81 27.98 21.37 73.76 10.91 0.0% 535,450 139,783 26.1% 43,745 DNB Dun Bradstreet Corporation 120.96 4,344 5,676 15.62 15.61 14.54 13.10 10.78 10.23 15.43 3.40 1.4% 1,668,700 433,400 26.0% 278,000 FDS FactSet Research Systems Inc. 140.75 5,876 5,736 27.30 25.31 22.81 16.72 15.65 14.41 18.56 6.10 1.1% 940,035 342,960 36.5% 215,225 FORR Forrester Research, Inc. 39.36 717 604 76.01 45.24 34.83 23.73 16.24 13.58 43.96 1.96 1.6% 308,902 25,459 8.2% 9,427 IT Gartner, Inc. 84.21 7,413 7,445 39.85 31.78 26.73 23.53 16.62 14.06 26.73 3.80 0.0% 1,958,169 316,452 16.2% 186,040 MORN Morningstar, Inc. 64.71 2,885 2,690 36.94 nm nm 16.70 10.96 nm 24.69 3.61 1.2% 744,156 161,097 21.6% 78,093 VRSK Verisk Analytics, Inc. 64.05 10,563 11,404 27.09 25.37 22.79 14.63 13.00 11.99 17.87 6.71 0.0% 1,698,585 779,517 45.9% 389,895 Median 4,344 5,676 38.39 28.57 24.09 16.72 13.00 12.78 25.59 3.61 0.0% 940,035 290,703 21.6% 78,093
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  Mercer Capital’s ValueFocus: FinTech Industry Fourth Quarter 2014 © 2015 Mercer Capital // www.mercercapital.com // Source: SNL Financial and Capital IQ 16 Ticker Name 12/31/14 Price Market Cap ($MM) Ent’p Val ($MM) Price / Earnings Ent’p Value / EBITDA Ent’p Value/LTM Yield LTM LTM FY15E FY16E LTM FY15E FY16E EBIT Rev. Revenue EBITDA Margin Net Inc. Banking Technology TRAK Dealertrack Technologies, Inc. 44.31 2,404 2,986 NM 164.11 nm 24.89 12.82 11.63 770.98 4.02 0.0% 743,206 119,955 16.1% (14,615) ELLI Ellie Mae, Inc. 40.32 1,159 1,074 107.21 322.56 91.64 40.75 29.86 17.60 55.73 7.39 0.0% 145,310 26,344 18.1% 10,811 EPIQ Epiq Systems, Inc. 17.08 622 893 NM 33.49 23.89 14.28 8.47 7.82 70.37 1.83 2.1% 488,770 62,574 12.8% (612) JKHY Jack Henry Associates, Inc. 62.14 5,082 5,053 24.30 23.81 21.28 nm 11.21 10.38 15.70 4.03 1.4% 1,254,901 NA nm 209,124 PFMT Performant Financial Corp. 6.65 328 357 16.69 27.71 11.88 6.40 7.58 5.20 8.13 1.66 0.0% 215,659 55,815 25.9% 19,648 Median 1,159 1,074 24.30 33.49 22.58 19.59 11.21 10.38 55.73 4.02 0.00 488,770 59,195 0.17 10,811 Insurance/Healthcare Technology ATHN athenahealth, Inc. 145.70 5,550 5,658 4,279.33 nm 955.43 60.94 34.37 27.24 1,077.07 7.96 $0.00 710,964 92,848 13.1% 1,297 CRVL CorVel Corporation 37.22 769 738 24.52 nm nm nm nm nm 14.95 1.50 0.0% 490,676 NA nm 31,347 CRD.B Crawford Company 10.28 566 717 14.85 11.42 9.79 6.65 5.73 5.19 10.14 0.59 $0.02 1,218,041 107,719 8.8% 38,134 EBIX Ebix, Inc. 16.99 623 640 10.01 10.82 nm 7.22 7.17 6.66 8.14 3.13 1.3% 204,535 88,634 43.3% 62,256 GWRE Guidewire Software, Inc. 50.63 3,523 3,023 242.82 nm 399.29 127.46 48.99 38.59 180.12 8.32 $0.00 363,451 23,717 6.5% 14,510 HMSY HMS Holdings Corp. 21.14 1,856 1,933 67.65 42.28 25.47 17.68 13.22 9.62 35.44 4.27 0.0% 452,656 109,384 24.2% 27,434 MGLN Magellan Health Services, Inc. 60.03 1,638 1,529 21.46 25.54 20.63 7.47 5.49 5.28 13.10 0.40 $0.00 3,785,869 204,555 5.4% 76,330 SLH Solera Holdings, Inc. 51.18 3,492 5,261 NM 60.93 37.91 18.60 10.99 10.06 35.61 5.01 1.4% 1,049,314 282,896 27.0% (10,391) SR Standard Register Co. 3.26 30 330 NM nm nm 7.89 nm nm 58.62 0.36 $0.00 915,177 41,792 4.6% (9,452) Median 1,638 1,529 24.52 25.54 31.69 12.78 10.99 9.62 35.44 3.13 0.0% 710,964 100,284 6.5% 27,434 Investment Technology ADVS Advent Software, Inc. 30.64 1,584 1,768 31.55 28.64 25.32 16.85 11.97 11.06 21.11 4.46 1.3% 396,820 104,943 26.4% 50,212 DST DST Systems, Inc. 94.15 3,583 3,984 6.04 15.82 13.95 4.20 8.70 8.31 4.87 1.45 1.3% 2,749,300 949,300 34.5% 593,300 ENV Envestnet, Inc. 49.14 1,688 1,612 151.00 73.34 49.89 45.54 20.23 15.18 92.40 4.94 0.0% 326,343 35,402 10.8% 11,176 LIQD Liquid Holdings Group, Inc. 0.32 19 (11) NM nm nm nm 0.63 nm nm nm 0.0% 5,218 NA NM (30,101) MSCI MSCI Inc. 47.44 5,315 5,659 18.54 26.65 22.32 13.46 13.32 12.18 16.44 5.59 0.4% 1,013,197 420,369 41.5% 286,728 Median 1,688 1,768 25.04 27.64 23.82 15.16 11.97 11.62 18.78 4.70 0.4% 396,820 262,656 30.5% 50,212 Publicly Traded Technology Companies
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  Mercer Capital Financial Technology Industry Services ContactUs Copyright © 2015 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media quotations with source attribution are encouraged. Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry Focus is published quarterly and does not constitute legal or financial consulting advice. It is offered as an information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list to receive this complimentary publication, visit our web site at www.mercercapital.com. Mercer Capital provides financial technology companies with valuation, financial advisory, and consulting services. Contact a Mercer Capital professional to discuss your needs in confidence. Jay D. Wilson, CFA, ASA, CBA 901.322.9725 [email protected] Matthew R. Crow, CFA, ASA 901.685.2120 [email protected] Jeff K. Davis, CFA 615.345.0350 [email protected] Mercer Capital 5100 Poplar Avenue, Suite 2600 Memphis, Tennessee 38137 901.685.2120 (P) www.mercercapital.com BUSINESS VALUATION FINANCIAL ADVISORY SERVICES Mercer Capital provides valuations for a variety of purposes including, corporate/strategic planning, transactions (fairness opinion and MA), equity compensation (409A compliance, ESOPs, and stock option programs), and financial statement reporting (purchase price allocations, impairment testing, equity compensation). Additionally, Mercer Capital provides related financial advisory and consulting services for companies across the corporate lifecycle — from start-ups to more mature companies. Industry Segments • Payments. Those FinTech companies that facilitate and/or support the transfer of money, particularly non-cash transactions, including processors, merchant acquirers, and hardware/software companies. • Technology. Those FinTech companies providing software and technology services to other financial services companies, such as banks/thrifts/credit unions, investment companies, and healthcare/insurance companies. • Solutions. Those FinTech companies that assist businesses (including non-financial companies) with financial services solutions, including general outsourced solutions, payroll/administrative, and financial media/content. Services Provided • Valuation of financial technology companies • Financial advisory/valuations for acquisitions and divestitures • Valuations for purchase accounting and impairment testing • Fairness and solvency opinions • Litigation support for economic damages and valuation and shareholder disputes • Consulting and board presentations for corporate and strategic planning
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  © 2015 MercerCapital // www.mercercapital.com 18 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 Fairness Opinions Evaluating a Buyer’s Shares from the Seller’s Perspective MA activity in the U.S. (and globally) has accelerated in 2014 after years of gradual improvement following the financial crisis. According to Dealogic, MA volume where the target was a U.S. company totaled $1.4 trillion YTD through November 10, the highest YTD volume on record and up 43% from the same period last year. Excluding cross-border acquisitions, domestic-only MA was $1.1 trillion, which represented the second highest YTD volume since 1999 and up 27% from last year. Healthcare and telecommunications were the first and second most targeted sectors. The improvement has taken a long time even though corporate cash is high, financing costs are very low and organic revenue growth in most industries has been sluggish. Aside from improving confidence, another key foundation for increased MA activity fell into place in 2013 when equity markets staged a strong rally as the SP 500 rose 30% (32% with dividends) and the Russell 2000 increased 37% (39%). The absence of a meaningful pull- back in 2014 and a 12% advance in the SP 500 and 2% in the Russell 2000 have further supported activity. The rally in equities, like low borrowing rates, has reduced the cost to finance acquisitions because the majority of stocks experienced multiple expansion rather than material growth in EPS. It is easier for a buyer to issue shares to finance an acquisition if the shares trade at rich valuation than issuing “cheap” shares. As of November 24, the SP 500’s P/E based upon trailing earnings (as reported) was 20.0x compared to 18.2x at year-end 2013, 17.0x at year-end 2012 and 14.9x at year-end 2011. The long-term average P/E since 1871 is 15.5x (Source: http://www.multpl.com). High multiple stocks can be viewed as strong acquisition currencies for acquisitive com- panies because fewer shares have to be issued to achieve a targeted dollar value. As such, it is no surprise that the extended rally in equities has supported deal activity this year. However, high multiple stocks may represent an under-appreciated risk to sellers who receive the shares as consideration. Accepting the buyer’s stock raises a number of questions, most which fall into the genre of: what are the investment merits of the buyer’s shares? The answer may not be as obvious as it seems, even when the buyer’s shares are actively traded. Our experience is that some, if not most, members of a board weighing an acquisition pro- posal do not have the background to thoroughly evaluate the buyer’s shares. Even when financial advisors are involved there still may not be a thorough vetting of the buyer’s shares because there is too much focus on “price” instead of, or in addition to, “value.” A fairness opinion is more than a three or four page letter that opines as to the fairness from a financial point of a contemplated transaction; it should be backed by a robust analysis of all of the relevant factors considered in rendering the opinion, including an evaluation of the shares to be issued to the selling company’s shareholders. The intent is not to express an opinion about where the shares may trade in the future, but rather to evaluate the invest- ment merits of the shares before and after a transaction is consummated. Key questions to ask about the buyer’s shares include the following: • Liquidity of the Shares. What is the capacity to sell the shares issued in the merger? SEC registration and even NASDAQ and NYSE listings do not guarantee that large blocks can be liquidated efficiently. Generally, the higher the institutional ownership, the better the liquidity.Also, liquidity may improve with an acquisition if the number of shares outstanding and shareholders increase sufficiently.
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  © 2015 MercerCapital // www.mercercapital.com 19 Mercer Capital’s Value Focus: FinTech Industry Fourth Quarter 2014 • Profitability and Revenue Trends. The analysis should consider the buyer’s historical growth and projected growth in revenues, and operating earnings, (usually EBITDA or EBITDA less capital expenditures) in addition to EPS. Issues to be vetted include customer concentrations, the source of growth, the source of any margin pressure and the like. The quality of earnings and a comparison of core vs. reported earnings over a multi-year period should be evaluated. • Pro Forma Impact. The analysis should consider the impact of a proposed transaction on revenues, EBITDA, margins, EPS and capital structure. The per share accretion and dilution analysis of such metrics as earnings, EBITDA and dividends should consider both the buyer’s and seller’s perspectives. • Dividends. In a yield starved world, dividend paying stocks have greater attraction than in past years. Sellers should not be overly swayed by the pick-up in dividends from swapping into the buyer’s shares; however, multiple studies have demonstrated that a sizable portion of an investor’s return comes from dividends over long periods of time. If the dividend yield is notably above the peer average, the seller should ask why? Is it payout related, or are the shares depressed? Worse would be if the market expected a dividend cut.These same questions should also be asked in the context of the prospects for further increases. • Capital Structure. Does the acquirer operate with an appropriate capital structure given industry norms, cyclicality of the business and investment needs to sustain operations? Will the proposed acquisition result in an over-leveraged company, which in turn may lead to pressure on the buyer’s shares and/or a rating downgrade if the buyer has rated debt? • Balance Sheet Flexibility. Related to the capital structure should be a detailed review of the buyer’s balance sheet that examines such areas as liquidity, access to bank credit, and the carrying value of assets such as deferred tax assets. • Ability to Raise Cash to Close. What is the source of funds for the buyer to fund the cash portion of consideration? If the buyer has to go to market to issue equity and/or debt, what is the contingency plan if unfavorable market conditions preclude floating an issue? • Consensus Analyst Estimates. If the buyer is publicly traded and has analyst coverage, consideration should be given to Street expectations vs. what the diligence process determines. If Street expectations are too high, then the shares may be vulnerable once investors reassess their earnings and growth expectations. • Valuation. Like profitability, valuation of the buyer’s shares should be judged relative to its history and a peer group presently as well as relative to a peer group through time to examine how investors’ views of the shares may have evolved through market and profit cycles. • Share Performance. Sellers should understand the source of the buyer’s shares performance over several multi-year holding periods. For example, if the shares have significantly outperformed an index over a given holding period, is it because earnings growth accelerated? Or, is it because the shares were depressed at the beginning of the measurement period? Likewise, underperformance may signal disappointing earnings, or it may reflect a starting point valuation that was unusually high. • Strategic Position. Assuming an acquisition is material for the buyer, directors of the selling board should consider the strategic position of the buyer, asking such questions about the attractiveness of the pro forma company to other acquirers. • Contingent Liabilities. Contingent liabilities are a standard item on the due diligence punch list for a buyer. Sellers should evaluate contingent liabilities too. The list does not encompass every question that should be asked as part of the fairness analysis, but it does illustrate that a liquid market for a buyer’s shares does not necessarily answer questions about value, growth potential and risk profile. We at Mercer Capital have extensive experience in valuing and evaluating the shares (and debt) of financial and non-financial service companies garnered from over three decades of business. Feel free to contact us to discuss your situation in confidence. Jeff K. Davis, CFA [email protected]