The EBIX announcement is the latest in a series of transactions taking place in the Insurance Technology space.  In March of 2013 there were three deals announced; 1) Applied Systems, a Bain Capital Portfolio company, acquired IVANS Property & Casualty Information Exchange which was backed by an insurance industry consortium, 2) Insurity, the Genstar Capital backed Insurance Technology business,  acquired AQS, which was previously owned by Grey Mountain Partners  and 3) SAP acquired Camilion, which was backed by several Canadian venture capital firms including Celtic House Venture Partners, GrowthWorks, and MMV Capital Partners . That is quite a month for Insurance Technology and the Private Equity/Venture Capital groups that invest in the space.

This latest wave of heightened interest in the Insurance Technology market really started about 18 months ago when Accenture acquired Duck Creek. Based on our market assessment, we expect to see continued interest and intensified activity levels in the Insurance Technology markets. With insurance carriers greater acceptance of third party software products and a willingness to look at outsourcing as a key strategy – we expect that the M&A activity level will continue to ramp up as larger software and outsourcing vendors position themselves to  capture a piece of this large and growing market. In addition, we expect to see continued investment by the private equity community as there is a strong belief that we are still early in this refresh cycle.

Late last year, Navigant acquired Easton Associates, LLC a boutique strategy consulting firm focused on the pharmaceutical sector and earlier this year LLR Partners invested in HighPoint a Pharmaceutical focused IT Consulting firm.  Life Sciences has not received the same level of attention that the Healthcare provider market has with its notable acquisitions including SAIC’s acquisition of MaxIT last year for almost $500 million and RLH’s recent acquisition of Chartis, a healthcare strategy consulting firm.

While we believe activity in the Healthcare market will continue to accelerate we believe that 2013 may be the year for Life Sciences to make its mark.  The public markets for Life Sciences companies is also active. ModelN, a revenue management software provider had a very successful IPO last month and Quintiles just recently priced its IPO.

We are seeing heightened activity in the Life Sciences market across our areas of focus including IT, Business Consulting, Software and Data.  Consequently, we expect a number of M&A deals to be announced in the coming months for services, software and data providers serving this dynamic market.

The deal was struck at CAD $20/share representing a total enterprise value of CAD $320 million. The purchase price represents a 24% premium to the prior day’s closing price. From a valuation perspective, the deal was done at 0.3x LTM revenue and 6.0x LTM EBITDA.

The timing of the deal is interesting as earlier this month, private equity backed CompuCom Systems ($2.3 billion of revenue) announced that it was being acquired by Thomas H. Lee Partners for a reported $1.1 billion, representing 0.5x revenue. We expect to see continued activity from private equity firms across the IT resale and services spectrum.

Clearly, Green Dot has suffered recently in the markets due to challenges from a client/distribution network concentration issue that has gone the wrong way for them. The good news for Blackhawk is that they still have Safeway as a major shareholder which certainly mitigates that risk. The current deal for NetSpend, prices the Company at over 3X revenue – certainly a strong value. The enthusiasm for Blackhawk can certainly be tied to the value of TSYS deal for NetSpend and what that may portend for a future deal for Blackhawk. It may just be that the market is very excited about the prepaid card industry.

While we believe all of the above has something to do with the strong investor interest in Blackhawk , we also think that there is something more subtle that is taking place in the market that is leading sophisticated investors to enthusiastically clamor for Blackhawk. We see a battle ground in financial services taking shape for a large market of consumers that are currently underserved by traditional financial services providers, namely banks. The underbanked market has tremendous potential. Whether you believe that the market is comprised of the 34 million US households that offer a $45 billion financial services opportunity that has been suggested or you think it is somewhat smaller – there is no doubt that it is significant. As such, we see a variety of players focusing on this opportunity and positioning themselves to capture a large piece of the available pie.

Given that access to this market is one of the critical components, we see the Blackhawk’s of the world as offering a unique opportunity to effectively reach these consumers. Thus, we expect that the convergence of solutions/providers – stored value cards, prepaid cards, money transfer businesses, walk in bill pay, etc. will be the path to becoming a dominant financial services provider to this massive underserved target market of consumers. American Express has already demonstrated their strong interest in capturing this market with the launch of their Bluebird suite of services and their strategic partnership with Walmart. We are confident that over the coming years you will see continued convergence as more traditional financial services providers with significant balance sheets start to assemble their strategy and solution through the strategic acquisition of the appropriate puzzle pieces  to effectively serve this very large and interesting underbanked market.

Now in its fourth years since the SEC mandate, all publicly traded companies are required to tag their financial data with XBRL and file it with the SEC. The limited liability provision is also expiring this year, which means that XBRL exhibits will have the same liability provisions as regular filings. In other words, officers and directors of companies could be held liable for a material misstatement or omission in their XBRL filings.

Last week we attended The XBRL and Financial Analysis Conference held at the Zicklin School of Business at Baruch College in New York City. Overall, I would give the conference good grades. It was well attended and many of the key participants in the space participated sharing their insights on the current and future states of XBRL. There were two underlying messages that I took away from the conference. First, XBRL holds great promise. When (and if) leveraged to its full potential it provides greater transparency, access, speed, accuracy and context to financially reported data at an enterprise or cross sectional level. True believers expect it to revolutionize not only financial reporting but how the investing public consumes and extracts value from reported data. The second message from the conference was simply there is still a lot of work to be done before this state can be achieved. Key themes that emerged from the conference include the following:

Standardization – As it is applied today (at least in the US) XBRL is unnecessarily complex and in conflict with its primary goal of creating greater standardization and thus comparability in financial reporting. The language as conceived has somewhere in the ballpark of [20,000] potential tags, which gives reporting entities significant flexibility in defining their financial data. Further compounding this issue is the fact that entities can create their own extensions, thus making the taxonomy virtually unlimited. This opens the door to abuse. Said another way, if companies want to be opaque they simply have to be creative when tagging their data. The good news is that based on participant accounts many companies are looking to their peer groups and conforming their tagging practices both in the spirit of compliance and as a CYA measure. Let’s hope this practice becomes mainstream.

Accuracy and enforcement – Despite the expiration of the limited liability protection, it seems that XBRL filings are still often wrought with errors. Granted the errors are generally not in the form of fraudulent data, but more typically related to scale (e.g. thousands vs. millions), dates, share counts, etc. All of which can be normalized and corrected. Most chalk these errors up to learning curve and expect the frequency to decline as reporting entities become more proficient at or fluent in XBRL. Others were more skeptical. Dan Gode, Clinical Associate Professor of Accounting, New York University’s Stern School of Business, expressed that without a clear enforcement mechanism filing companies and specifically CFOs and CEOs will not take XBRL seriously, ultimately endangering its efficacy.  Dan’s solution which other participants also endorsed was including the XBRL tagging and filing process as part of the Sarbanes Oxley review and audit process. I tend to agree with this point of view. Without a credible enforcement mechanism it is unlikely that XBRL will truly capture the attention of the C-suite or Board room and reach its full potential.

Data Aggregators  – As I see it, the true winners today are the data aggregators. This may seem somewhat counterintuitive as XBRL could be viewed as a category killer for this group. The reality is today they are its beneficiary. Before XBRL filings the data aggregators had to employ scores of analysts to scour the public filings and manually extract, standardize/transform/cleanse and load the reported company data into a database at which point it became available to its clients in the form of summary financial statements, analytics, etc. Today, with the use of software tools the XBRL tagged data is extracted in real time (once filed) and loaded into databases. I suspect the process of cleansing the data for errors (see above) still requires some manual processes or at least review/quality assurance, but doesn’t come close to the labor intensive model that was once employed. It will be interesting to see how this drama unfolds in the future.

Consumer tools, or lack thereof  - Despite some real strides from firms like Rivet Software and CalcBench there are few consumer tools available today that can truly extract all the benefits promised by XBRL. In retrospect, over the last four years the focus has been on the development of issuer tools that automate or at least streamline the process(es) of tagging financial data in XBRL and rightfully so. Arguably, that is the 1^st half of the equation that needed to be tackled first. In my view, the true power of XBRL is extending these tools to the investing public, whether that means on the trading desks of Morgan Stanley, the desktop of day-traders or the dorm rooms of aspiring traders. Until these tools are developed, refined and employed XBRL will continue to move sideways. The good news is that the pundits have spoken and the focus has shifted. The vision is there and now it comes down to execution.

In summary, I would characterize XBRL as being in the 3^rd or 4^th inning of a nine inning game (at least in the US). But if the global financial community is a leading indicator XBRL as a language and standard hold great promise and will continue to evolve in the US. We believe that in the coming 12-24 months XBRL will mature and winners will begin to emerge on both the software and services side of the equation. Ultimately, we expect it to lead to more transaction activity in the space in league with RR Donnelley’s acquisition of Edgar Online last year at this time.

Intelligence provides a wide variety of staffing and IT services, including online and classified job search advertising, permanent job placement, and temporary staffing and business process outsourcing services, in Japan, China and South East Asia. KKR acquired Intelligence in September 2010 for approximately $360 million (at 0.5x revenues). According to several news sources, KKR will realize more than 5 times its initial investment on the sale. For the twelve month period ending March 31, 2012, Intelligence reported revenues of 69.8B Yen ($740MM) and Operating Profit of 5.0B Yen ($53MM), implying a multiple of revenue and operating profit of approximately 1.0x and 13.6x, respectively.

The staffing industry has seen a flurry of deals in the last 18 months, with over 120 deals announced since January 2012, including over 20 transaction announced year to date in 2013. We expect the pace of M&A in the staffing sector to continue over the next 12-24 months due largely to a better overall environment for staffing businesses. Correspondingly, private equity will continue to look for opportunities to invest in the sector with the expectation that staffing firms will experience a period of secular growth (particularly IT staffing) as the economy slowly recovers, temporary hiring increases and unemployment eases. Conversely, those investors who bought into the sector in 2009 and 2010 at depressed valuations will be an ample source of supply as they look to take advantage of the healthy valuations ascribed to high-performing staffing businesses, such as the case with KKR.

Clearsight Advisors, Inc. (“Clearsight”) is pleased to announce the successful completion of a strategic transaction in the data analytics arena. Ernst & Young LLP announced that Semphonic, a leading digital measurement and data analytics consulting firm, has joined Ernst & Young in the U.S. Semphonic is focused on providing Fortune 500 clients with insights into complex customer interaction challenges they face across channels. This transaction continues Clearsight’s commitment in assisting owners and management teams of high growth businesses achieve their objectives.

“This announcement provides for a natural extension of Ernst & Young LLP’s analytics offerings,” said Andy Rusnak, principal and leader of Ernst & Young LLP’s Enterprise Intelligence group. “Together, we can offer an even deeper analytic capability that can be applied to predictive and prescriptive analytic challenges across multiple sectors. This comes at a pivotal time when companies are asking themselves how best to improve the performance of their digital channel. Semphonic adds deep experience into the complex website and mobile app customer interaction challenges our clients may face in developing and executing their digital channel strategy.”

Semphonic, headquartered in Novato, California, was founded in 1997 and advises clients on customer segmentation and digital marketing.

“With the specialized skills and methods from Semphonic, Ernst & Young LLP can now work with clients to address the entire digital channel by using advanced statistical methods, proprietary methods to analyze digital behavioral data and advanced digital customer segmentation,” said Gary Angel, Semphonic president and chief technology officer, who will serve as a principal in Ernst & Young LLP’s Advisory Services Enterprise Intelligence practice. “The firm’s clients now have the ability to improve the efficiency of their digital marketing spend, as well as their website and mobile experiences, and drive integrated and offline personalization and targeting.”

Jim Sterne, founder of eMetrics Summit and chairman of the Digital Analytics Association, stated that Semphonic’s sharp focus on client success, while staying broadly informed on the vagaries of data proliferation has given them access to the latest tools, helped them create the most sought after techniques and allowed them to truly take a thought leadership position in the digital analytics industry. “Now, with Ernst & Young’s resources, we can expect another step-change in marketing optimization efficiency and competitive edge sharpening,” he added.

Financial Analyst Job Posting

Workday continues to be the dominant cloud solution in the HR space and OneSource as well as a small group of other Workday service providers have ridden the Workday wave to incredible growth. OneSource Virtual as well as other Workday partners are growing at, or in some cases in excess of 100% per annum. This growth continues to attract strategic and private equity interest. Deals in the Workday ecosystem started last year with Deloitte’s acquisition of Aggressor, Aon’s acquisition of Omnipoint and Appirio’s acquisition of Knowledge Infusion. OneSource Virtual is the first pure play Workday services firm to bring in a Growth Equity financial partner but we expect others to follow suit in 2013. At the same time we expect M&A activity in the Workday ecosystem to continue as the large Consulting and HR Outsourcing firms are willing to pay premium values for access to the this market and the growth associated with the Workday partners.

The partnership between Halyard and OneSource Virtual is a great fit. Halyard has a strong track record of helping its portfolio companies scale and with fresh capital OneSource Virtual is well positioned to strengthen its dominant position in the Workday ecosystem and continue to expand its outsourced offering in the space.

From a broader perspective, the acquisition is in line with KPMG’s aggressive growth strategy that includes broadening and strengthening its existing services and developing new solutions. As we have stated several times before, we expect KMPG and others such as E&Y, Deloitte and PwC to continue to be highly acquisitive over the next 12 -18 months.