Ovum has some substantial strengths. As we explained yesterday, Informa’s business model means that it contains some of the most profitable businesses in any industry. Ovum has more of a global footprint and, with over 100 analysts, enough scale to meet the needs of many clients. Since separating from Datamonitor two years ago, Ovum has consolidated its consulting business and developed an events business.
Ovum faces a paradox. To put these advantages to work, Ovum needs to invest in retraining its talented analysts and spokespeople, expanding its reach and innovating to deliver more value to clients. However, Informa needs to plough profits into the financing of its acquisitions. Datamonitor, which then included Ovum, accepted an astonishingly generous offer from Informa in 2007: Roughly 32 times Datamonitor’s pre-deductions earnings (EBITDA) in 2006. At the risk of understatement, the economy has not been so vibrant since then as it was in the year before. Informa has continued to deliver growth and, after a failed take-over bid in 2008, has been delivering even more impressive growth.
But that growth, in profitability and hence in stock price, is a choice which involves forgoing greater investment in Ovum. Wages and working conditions are not what they were at Ovum (although Datamonitor was beyond frugal). That slows the ability to attract and retain talent. Remember, there’s not much of the original Ovum left (and Orbys, which was part of Ovum, is now dormant). Whole teams left, more or less all the practice leaders included and now also Brett Azuma, the MD who had been appointed by Datamonitor.
Now it has an Informa insider at the helm, we can expect a period of reflection at Ovum. Perhaps at the end of year, we might see the impact of the new leadership. However, given the pressure to generate super-profits in the short term, it’s hard to see how Ovum can survive as it currently is in the long term.