Ebix Inc (EBIX), Solera Holdings Inc (SLH): Market Overraction on This Insurance Software Solution Company

Growing via acquisitions

Ebix Inc (NASDAQ:EBIX), founded in 1976, is the international leader in providing software and e-commerce solutions, specifically for the insurance industry, with around 80% of its total revenue, $159.7 million, coming from on-demand insurance exchanges. The Broker Systems and Business Process Outsourcing contributed only $18.6 million and $16.1 million, respectively, in 2012 revenue.

In the past five years, Ebix Inc (NASDAQ:EBIX) has managed to consistently grow its revenue and net income. Revenue increased from $75 million in 2008 to $199 million in 2012, while the net income rose from $27 million to $71 million in the same period. The business could be considered a cash cow, with an increasing cash flow. The free cash flow consistently increased from $26 million to $70 million during the past five years. Ebix Inc (NASDAQ:EBIX) seems to grow its business mainly from acquisitions–since 2008, Ebix Inc (NASDAQ:EBIX) has spent the total amount of $171 million to acquire businesses. Ebix generated only $10 million in free cash flow, including the acquisition amount.

Ebix has quite a conservative capital structure. As of March 2013, it had $377 million in equity, $44 million in cash and only $48 million in both long and short-term debt. However, because of a lot of acquisitions, the goodwill and intangible assets were huge, at $408 million. Consequently, Ebix had negative equity of $(31) million. After the drop, Ebix is trading at $9.52 per share, with a total market cap of $353.8 million. The market values Ebix at only 4.46 times its trailing EBITDA.

Solera has a much weaker balance sheet

Compared to Solera Holdings Inc (NYSE:SLH), Ebix has a much cheaper valuation. Solera Holdings Inc (NYSE:SLH) is trading at nearly $52.10 per share, with a total market cap of nearly $3.6 billion. The market values Solera at 12.54 times its trailing EBITDA. Recently, Solera Holdings Inc (NYSE:SLH) has expanded its footprint in the Australian market by acquiring Eziworks Pty, which operates as Car Quote. Solera Holdings Inc (NYSE:SLH)’s founder, Tony Aquila, felt bullish about this acquisition. He said The Car Quote solution platform and its strong management team are a great addition to Solera Holdings Inc (NYSE:SLH). This acquisition will accelerate our delivery of an end-to-end claims management platform in Australia, driving value to a market that processes more than 1 million annual collision repair claims.