The technological revolution of the past 15 years has posed well-documented and existential challenges for many of the print media behemoths of the twentieth century. Other publishers, however, have had their growth turbocharged by this transformation, bringing them inexorably to the attention of strategic and financial acquirers.
Specialist data analytics services providers capable of supplying their corporate clients with in-depth, real-time, sector-specific quantitative analytics and editorial insight are one category of media business riding a wave of inward investment. Their scalable, subscription-based business models mark these companies out as ideal targets for acquirers seeking the twin guarantees of recurring revenues and a transparent relationship between growth in these revenues and increased profitability.
A textbook example is provided by the acquisition of Incisive Insight, a division of the publishing group Incisive Media comprising specialist financial titles such as Risk.net and WatersTechnology, by French information services group Infopro Digital in March. And the deal is only one recent addition to the ongoing succession of mergers and acquisitions in the sector.
Two recurring themes crop up within this wealth of activity. The first is American interest in European assets. In May 2016, General Atlantic acquired a controlling stake in UK energy and commodities reporter Argus Media, valuing the company at close to £1bn ($1.4bn). Two months earlier, IHS and Markit had unveiled plans for a $13bn transatlantic ‘merger of equals’, combining their respective specialisms in the industrials and financial services sectors. In 2015, Nasdaq-listed Verisk Analytics bought Edinburgh-headquartered Wood Mackenzie, an information specialist focused on energy and metals, for £1.85bn ($2.8bn). (Though these transatlantic deals can also go in the opposite direction: last month, France’s Schneider Electric sold its US-based agriculture news and data service DTN to Swiss private office TBG for $900m.)
The second theme is the preponderance of deals involving financial data providers. In addition to the Incisive Insight sale, Morningstar paid $180m last October to buy out the remaining 80% stake in PitchBook Data, a specialist in private capital research. 2015 saw Intercontinental Exchange’s $5.2bn acquisition of financial data provider Interactive Data Corp and McGraw Hill Financial’s $2.2bn acquisition of SNL Financial, whilst private equity investors Carlyle and BC Partners have respectively added Dealogic and Mergermarket Group to their portfolios in recent years.
It’s not just the volume of these deals that stands out, but also their value. Argus Media’s valuation of almost £1bn represented an EBITDA multiple of almost 20x. With a 2014 EBITDA of £107m, Wood Mackenzie commanded a valuation multiple only marginally lower. These are significant premia being paid for best-in-class data companies.
Their attractiveness to acquirers stems from the fundamental strength and simplicity of their business model. The revenues that Incisive Insight, Argus Media and their peers generate from corporate subscribers have a high degree of forward visibility, allowing each company to take on higher levels of debt with greater security. This leverage can then be used to finance the comparatively low levels of capital expenditure these digital-centric businesses require to secure and service new clients, generating lucrative new revenue streams without incurring major additional cost. Consequently, when revenues increase, earnings increase even more.
There are obvious parallels here with the SaaS businesses previously examined in this column, particularly in how both are well positioned for growth by virtue of their recurring, subscription-based revenues. But there’s also an instructive contrast to be drawn between data companies as B2B (or business-to-business) publishers and their B2C (or business-to-consumer) counterparts.
For newspapers and other media businesses targeting a more generalist readership of individual consumers, revenue streams are manifestly less secure, as they contend with a secular decline in their traditional income sources of subscription rates and advertising. This is reflected in the more restrained investment into these businesses, and a markedly different context in which sale processes take place.
Upon launching a strategic review of the company in December, the new Daily Mail and General Trust chief executive Paul Zwillenberg announced that there were “no sacred cows”, suggesting a willingness to hear offers for DMGT’s stable of properties. There’s clearly a different dynamic at play here, where asset disposals are being driven by the need to rationalize operations and cut costs, than with M&A in the data space. The latter, by contrast, increasingly resembles a fierce competition for up-and-coming trophy assets, the high prices for which are rooted first and foremost in their robust business models.
The potential synergies delivered by increased scale have intensified the competition for B2B data companies further still among trade buyers. Speaking to investors via conference call following the announcement of his company’s merger with Markit, IHS’s CEO and chairman Jerre Stead proclaimed: “In all my years of business experience… I have never seen a transaction with as much value-creation potential as with this merger.” If a degree of bullishness was to be expected in this context, Stead’s comment also reflected a pervasive sense among data businesses – namely, that scale equals profit – which will continue to encourage strategic acquisitions.
In the increasingly atomized media landscape of the digital age, B2B data companies are not just surviving, but thriving. And by drawing the interest of investors keen to profit from the sector’s growth potential, they are making their own substantial contribution to the very M&A activity which a number specialize in analyzing.