Goldman Sachs Group, Inc. (NYSE:GS) announced a takeover bid for Ebix Inc (NASDAQ:EBIX) to take the company private for $20 per share, close to a 10% premium to the closing price the prior day. Ebix Inc (NASDAQ:EBIX) has faced scrutiny for their accounting practices and was called a “house of cards” in a blog report on the firm that spurred an investigation. The company was discussed in an earlier post on this website where we concluded the negative news was more than priced and the risk/reward was attractive. Goldman Sachs Group, Inc. (NYSE:GS) agreed.
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.