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Reviewing a Potential Takeover Target in the Cloud Computing Space

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This niche player is doing well on its own, but could be a takeover target to boot.

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Shares of Guidewire Software (GWRE), a provider of solutions for the property & casualty (P&C) insurance industry, have cooled a bit over the past few months. But the company's long-term outlook remains promising, with management maintaining its annual revenue growth target of at least 20%.

Guidewire went public in January at $13 a share (above the expected range of $10 to $12), opened for trading at $16.75, and closed the first day at $17.12. The stock ran up to a high of $38.13 in late March before pulling back with the overall market, trading down to $22.40 in early June.

The company's software-featuring a Web-based interface that is accessed either on-premises or via the cloud-is used for underwriting, policy administration, claims management, and billing. Customers generally implement Guidewire's solutions as a replacement for legacy systems because the company's offerings are more cost effective, efficient and easily configurable when it comes to workflows, rules and user interfaces.

According to IT research firm Gartner, the P&C insurance industry spends nearly $15 billion a year on software and IT services. There are approximately 7,000 P&C insurance carriers worldwide, with roughly 2,300 in the US. Guidewire CEO Marcus Ryu estimates that the company, which has more than 110 customers worldwide, has penetrated its target market by just 10%.

Guidewire's ClaimCenter claim-management system is well regarded in the P&C sector, because it allows both large and small insurers to proactively manage claims in order to improve the speed and accuracy of the overall process.

In addition to ClaimCenter, Guidewire's first product, the company offers PolicyCenter and BillingCenter applications, giving it the ability to cross-sell into its installed customer base. Up to a third of Guidewire's revenue in any given quarter is generated by existing customers.

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