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Analysts: Green Dot's UniRush deal strategically sound, likely to boost earnings

Analysts are optimistic about the synergies of Green Dot Corp.'s deal with UniRush LLC, as it gives the prepaid reloadable card company a crop of new users and should contribute to its bottom line.

Keefe Bruyette & Woods analyst Steven Kwok said his first impression of the deal was that it "makes sense" strategically. Green Dot's addition of active card users is something that can be scaled on a consolidated servicing and origination platform, he said in an interview.

Compass Point analyst John Williams likes the deal as well, saying in a note to clients that UniRush is a "unique and valuable asset" that offers a "major strategic boost" for the acquirer. The analyst also pointed to the foothold that the deal gives Green Dot in the "coveted urban-millennial consumer segment." While Williams thinks the transaction was not a "steal" for Green Dot, he said the price discount likely reflects UniRush's "recent operational difficulties."

Per terms of the deal, Green Dot will pay $147 million for UniRush, plus a minimum $4 million annual earnout for five years after it closes. The earnout could grow if the RushCard prepaid card program hits certain revenue growth targets.

In the deal announcement, Green Dot said it expects the legal hangover from the 2015 incident that saw RushCard users unable to access their funds for a week due to technical issues to be resolved by the time the deal closes, or be covered by the cash escrow reserve funded by UniRush.

KBW's Kwok said there are synergies between the two companies that will be realized over time and added that the deal makes sense from an earnings accretion perspective as well. Compass Point's Williams wrote in his note that bringing in UniRush may add an extra 75 cents to $1.00 to Green Dot's share price in two years.

Guggenheim Securities analyst Eric Wasserstrom in a report said the purchase valuation seems high, but in the first year the deal should be "modestly financially accretive." Wasserstrom pointed out that the UniRush acquisition is in line with Green Dot's strategic goal of increasing revenue and adjusted EPS with both organic and inorganic growth in its core business functions.

Deutsche Bank analyst Ashish Sabadra wrote in a Jan. 31 note that while Green Dot expects to realize most deal-related synergies in 12 to 18 months, he thinks the company could "accelerate" that target since it has been the co-manager and issuer of RushCard retail cards. Depending on the timing of those synergies, the analyst expects the acquisition to be 15 cents to 20 cents accretive to EPS in fiscal year 2018.