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Morningstar | Allstate to Acquire InfoArmor for $525 Million

Allstate announced that it intends to acquire InfoArmor for $525 million in cash. InfoArmor provides identity protection services to over 1 million employees across more than 1,400 companies. We question the strategic fit of this acquisition, as we see the connection between identity protection and Allstate’s current operations as, at best, tangential. Further, while Allstate provided only very limited financial information on InfoArmor, the purchase price looks dear at over 8 times projected 2018 revenue. However, the deal is not significant enough to impact our $82 fair value estimate, which we will maintain along with our no-moat rating.

Historically, Allstate has occasionally turned to acquisitions in order to boost the stagnant top line within its legacy operations, and we have concerns that management is straying further from its core business over time. Esurance, which provided a foothold in the direct channel, has not worked out, in our view, as Esurance has been unable to close the scale gap between its larger peers in the direct channel. But that deal did have a reasonable strategic rationale at the outset given the market shift toward the direct channel. SquareTrade, which provides protection plans for consumer electronics, looked to us like an expansion into a line without a strategic fit for Allstate but at least retained an element of insurance. InfoArmor moves the company into a space that, to us, looks better suited to the credit bureaus. To management’s credit, these deals have not been particularly large or overly frequent, but we would prefer that they were completely avoided. We have concerns that if Allstate accelerates its activity along these lines, it could destroy a significant amount of shareholder value over time.