After two years of nudging into the brokerage industry, Equifax Inc. made its biggest play yet buying Compliance Data Center Inc. in its bid to become the leading provider of risk-management information for brokerages.
The $10 million stock deal, completed Thursday, makes Equifax the owner of a database designed to help brokerages ferret out information on fraudulent activities and wrongdoings by customers, such as broken trades and defaults on margin loans.
Compliance Data, of New York and Zephyr Cove, Nev., also provides access to the Office of Foreign Asset Control, which keeps a list of people prohibited from doing business with U.S. brokerage firms.
Equifax, already a major provider of credit information to banks about consumers seeking credit cards and checking accounts, aims dominate the information processing industry for banks and brokerages, said Dann Adams, senior vice president of financial services at the Atlanta company.
Equifax has had some dealings with brokerages, serving 17 of the top 35 U.S. firms through its own brand of online information services. These include identification and Social Security number verification, fraud alert, risk assessment, and check authorization.
It began to compile comprehensive brokerage data more aggressively last year, when passage of the Gramm-Leach-Bliley Act eliminated restrictions on affiliations between bank holding companies, securities firms, and insurance companies, Mr. Adams said. In struck a partnership with Compliance Data to gain access to some of its data, an agreement that ultimately led to Equifaxs outright purchase of the company.
We see major synergies with the brokerage industry, he said. This is a market our existing customers are moving into. Also, the brokerage industry is starting to offer checking accounts and credit cards, which is a core competency of Equifax. We are leveraging our traditional platform in a new industry.
Compliance Data, which will retain its management team, has been providing noncompliance reports since 1962. It has more than 150 subscribers and serves about 65% of the brokerage community.
Equifax will keep its traditional credit information on databases separate from Compliance Datas but allow customers to order both sets of information and view them on the same report. Equifax also will use its proprietary technology platform to deliver brokerage-fraud information to clients in seconds instead of a day.
The acquisition is expected to give Equifaxs 102-year-old information services division a lift. In October Equifaxs investors approved the companys plan to spin off its payment services division, which processes checks and credit cards, from information services. The company expects to execute the plan this summer, Mr. Adams said.
Equifaxs stock closed Friday at $32.94 down 0.9% from a week earlier.
Raimundo C. Archibold, an analyst with J.P. Morgan Securities in New York, said Equifax paid a reasonable price for Compliance Data and that the purchase should get a strong market reception.
They are complementing the content they already have, he said. Equifax is developing a higher-value service a more seamless solution by offering information for online enrollment to both brokerage and banking.
The purchase will not have a major effect on Equifaxs valuation, Mr. Archibold said. Nobody should be changing their numbers today because of this. It is clearly more of a strategic issue for them.
William A. Warmington, an analyst at Robinson-Humphrey Co. in Atlanta, said Compliance Data basically has a negative database of people who have defaulted on their margin loans over the last 40 years. That fits nicely with Equifaxs database, he said.
Combined, Mr. Warmington said, it will offer a broader, more integrated data set for clients.