TRW's credit reporting business, which it agreed to spin off to an investment group last week after years of losing market share, should thrive under its new majority owners, analysts say.
TRW Information Systems & Services Inc., which sells real estate marketing information and credit reports on consumers and businesses, had been seen as a stepchild of a corporate parent that concentrates on the automotive, space, and defense markets. Rumors of a sale had circulated for at least three years.
The planned divestiture was praised by analysts, who said the credit reporting business would thrive under the control of investors Thomas H. Lee Co. and Bain Capital Inc.
According to First Manhattan Co. analyst Raimundo Archibold, TRW has a 29% share of the consumer credit reporting market, less than in recent years. It ranks second to Atlanta-based Equifax Inc., at 50%. Trans Union Corp. of Chicago is third, at 21%.
Industry observers said Equifax has been ahead of its competitors in launching decision-modeling products.
"TRW will be able to play catch-up," said Mr. Archibold, who also contends it will become a stronger competitor. The company is also expected to expand its reach abroad, where it has been relatively passive.
The Boston-based investors Lee and Bain negotiated a $1.01 billion agreement that would give them combined ownership of more than 50% of the credit information company. Officials expect the transaction to be completed in the second half of the year.
TRW Inc. would retain 16% ownership of its Orange, Calif.-based subsidiary.
While questions remain about the Boston investors' vision for their pending acquisition, analysts pointed to the fact that Bain Capital and Thomas H. Lee have track records as long-term partners with companies in which they have an ownership stake.
One of the Lee firm's investments was Snapple Beverage, which was sold to Quaker Oats Co. in 1994. Bain was an investor in the Duane Reade drug store chain.
Bain managing director Mitt Romney gained political prominence in 1994 when he ran unsuccessfully to unseat Sen. Edward M. Kennedy, D-Mass.
TRW said the planned spinoff was likely to have little or no effect on customers. "This should be seamless to our customers, but over the long haul, it will improve our services," said D. Van Skilling, executive vice president and head of the credit reporting unit.
"They will not be passive investors," Mr. Skilling said of his new ownership group.
The general perception of the investors is that they would not be involved in day-to-day management but would focus on strategic decisions, particularly acquisitions.
Mr. Archibold said he thinks they would acquire "small niche companies" that would benefit from TRW software capabilities and offer TRW access to new business lines. Other observers agreed but could not offer specific examples of companies that might be targets.
Expanding TRW's reach abroad is a high priority for the investors, said Mr. Skilling.
TRW currently offers consumer credit reporting services in Mexico and Japan, and it delivers business credit reports over the major on-line systems worldwide.
In addition, TRW has a reciprocal partnership with a consortium of European countries and Canada to offer business credit information on European, Canadian, and U.S. companies.
By comparison, Equifax has a presence in 14 countries outside the United States, with consumer credit operations in at least six of them. And Trans Union has consumer and business operations in six countries abroad.
One executive close to the industry said TRW has not been as active as Trans Union and Equifax in bidding for credit bureaus in other countries that have gone on the selling block.
Analysts said international opportunities will become more important to the credit bureaus as the demand for U.S.-style, mass-market credit increases.
Mr. Skilling, a 26-year veteran of TRW, and his current management team are expected to remain in charge of the business, which employs 3,600.
TRW Information Systems & Services contributed $604 million, or 6%, of TRW Inc.'s 1995 revenues of $10.2 billion.
Trans Union of Canada, a subsidiary of Trans Union Corp., has introduced, with Fair, Isaac and Co., a new version of a credit scoring model that incorporates Canadian consumer data.
Previously, the model, called Empirica, had been offered in both the United States and Canada, but it was based on U.S. consumer data.
Empirica helps predict whether customers will pay their bills on time or late or will file for bankruptcy.