The value and post-acquisition performance of Informa

Guest post by Aleksandra Bosnjak, Lead TMT Analyst at StrategyEye, in advance of our recent webinar.

Informa, the UK-based B2B publishing and conference giant which just broke off its talks with UBM for a merger, now has another possible group of bidders: private equity groups Providence Equity Partners and Carlyle are working on a USD3.53bn cash bid, according to the company. This would be one of the biggest private equity deals since the global credit crunch crisis began. Informa had a market cap of around GBP1.8bn (USD3.55bn) on Thursday and GBP1.2bn (USD2.7) of debt at the end of 2007.

While there is no certainty that any of the proposed bids will go through, it is important to consider some of the challenges, as well as the possible impact on existing multiple brands recently acquired by Informa. As noted in StrategyEye’s June 9 viewpoint following the UBM bid, Informa has a very acquisitive past. Among its most recent moves was the acquisition of Datamonitor and Ovum, financed through debt. The deal resulted in many structural challenges inside both firms and a lot of content overlap, especially around the consumer services segments. This impacted negatively on Informa’s performance, ultimately resulting in a drop in its share price. However, the picture is much more complicated and this is why:

  1. Firstly, given the current market conditions and Informa’s huge debt exposure, it is highly likely that this deal will require a minimum of three to four co-bidders in order to win the approval of any financial institution and minimize investors’ exposure. However, multiple bidders and owners may have disparate interests in terms of how to progress after the acquisition so this further complicates the deal as far as Informa is concerned. It may take time to find a compatible group of PE investors.
  2. Secondly, there are enormous challenges associated with a possible ‘multi-brand’ break-up or sale of certain businesses acquired last year at, in StrategyEye’s view, too high a premium. Specifically, there is a big question mark hanging over Informa’s Telecoms & Media unit which combines publishing and events revenue arms. Following the Datamonitor-Ovum acquisition, it now hosts the Datamonitor Ovum branded Knowledge Centre. In terms of the impact on the group’s 2007 performance, ITM contributed 19% of revenue and 29% of adjusted operating profit, and 6.6% and 8.9% respectively of Informa’s total revenue. In the event of further acquisitions, new investors may be looking to break up multiple brands especially in cases where there is a lot of publishing content overlap. While there are different options on the table, new investors may be looking for ways to monetise and revive some strong research brands such as Ovum. Certainly, Ovum’s record under Datamonitor, and now Informa, is a classic example how the long-term underperformance of firms acquired in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market multiple brands. This ‘big brand’ performance record will be an important factor that both the market and private equity managements will look at when they assess the desirability of an acquisition such as Informa.
  3. Finally, despite the fact that all three of Informa’s business arms (publishing, events and performance improvement) performed well, integrating and managing multiple enterprise-wide, B2B brands is becoming increasingly difficult, both in terms of marketing efforts and enterprise relationships. For example, why would Cisco or any vendor subscribe to Informa, Datamonitor, and Ovum? Even though there is a high-level of different content under the three brands, there are heavy ‘go to market’ barriers. These include maintaining existing accounts, growing new business and competing with much stronger, technologically intuitive and platform-centric publishing firms. In StrategyEye’s view, connecting and managing multiple brands will be a challenge. Regardless of whether any of these bids goes through, Informa will have to revamp its business strategy big time, perhaps by developing a centralised platform to create a market-centric view, rather than a product centric view, of its brands and clients, especially when it comes to the ITM sector. Bringing on private equity owners would certainly speed up the transition, and offer various profit-making scenarios, including a possible rigorous sale of slow-growth businesses or cost cutting to improve the debt-ridden bottom line.
Aleksandra Bosnjak