Not Fade Away

HNC's absorption into Fair, Isaac could broaden analytics in three dimensions

HNC, After A long and distinguished life, will fade away — but its legacy will live on. The merger between Fair, Isaac and HNC, expected to be complete before October 2002, is likely to create a healthy company going forward, according to the apparently unanimous opinion of financial analysts. And this company will be a Fair, Isaac that will be increasingly known for its analytic products.

According to Brad Eichler, a financial analyst from Stephens Inc. Investment Bankers who has been following both HNC and Fair, Isaac, several factors make this merger a good one for both companies. Besides the redundant functions the merged companies will be able to shed, saving costs, "you've got the potential for revenue synergies," Eichler says. They have many customers in common because Fair, Isaac's credit evaluation software and HNC's fraud detection software are often both needed by the same customers. According to a published Gartner Group opinion, "Increasingly, financial service providers seek to integrate risk and fraud analytics into their CRM products. This merger will broaden Fair, Isaac and HNC's analytic offerings to better meet analytical CRM requirements."

Fair, Isaac has always been an efficiently run company with free cash flow, and it is likely to buy back stock to increase shareholder value as well.

Eichler couldn't comment on the speculation that the merged company's cash might be used to acquire other technology to push Fair, Isaac further into the analytics market, except to say that he thought the company had its hands full right now.

Gartner opines, "The vendors still lack true marketing automation, campaign management, and customer relationship optimization — necessary for staging offers, executing, and managing on the marketing side." The merged company's cash position may give it the power to acquire technology that fills out its customer relationship optimization capabilities.

However, one advantage this merger has over any such future acquisitions, according to Eichler, is that it requires no deep technological integration before it realizes the bottom-line benefits.

Both companies have been moving in the direction of analytics, and although their technology has heretofore been complementary, they were on track to clash in the marketplace were it not for this merger. They've been developing analytic software that leverages their existing credit and fraud systems to minimize risk or maximize profitability. Whereas HNC was pursuing a strategy of creating a horizontal analytic platform, Fair, Isaac plans to continue pursuing vertical markets, according to Eichler.

Fair, Isaac will benefit from HNC's penetration into verticals that Fair, Isaac hasn't yet tapped. According to Gartner, "Fair, Isaac never focused strongly on insurance, but HNC invested greatly in this vertical [market] in late 2000 and early 2001 to build a set of fraud and analytic offerings focused on claims."

— Jeanette Burriesci

In this Issue: