The news that Thomson Reuters announced today that it was “exploring strategic options”, as the dreadful euphemism for selling has it, for its Science and Intellectual Property businesses gives new meaning to another hoary old industry expression, “waiting for the other shoe to drop”! In this instance the other shoe has been hovering for about a decade, and might have happened at any point after the Reuters acquisition. Later, the move might well have followed the sale of Thomson Health to PE (now Truven). The logic of the Thomson Reuters merger, after all, was concentrating on the markets, corporate, and legal concerns of global corporates and their advisers. While IP had a sort of logic, in that patent activity is a measure of value, it seemed more important to build out into areas that bridge financial and legal – compliance, governance, regulatory – rather than fully absorb IP into the mix. So IP stayed with Science and now the pair are on the block. Meanwhile a new business has grown between the merging entities, worth some $600 m pa in revenues. And other investment areas of opportunity are emerging, so the parent company can reasonably say it wants to concentrate its investments on its core concerns. As it could have done ten years ago.
So just what is being offered for sale? In the firtst place two very different businesses, but together they form a $1 bn revenue block, with an Ebitda of 32% (some 10% of the parent’s margins). The bit that is being sold is slightly more profitable than the group to which it belonged. But many bidders and advisers will see it as two businesses. On the one hand, IP is the market leader in patent information, with a slew of services that run from instant updating through to the fully analysed and technically abstracted Derwent World Patent Index. IP Manager was one of the first convincing “solutions” to manage workflow effectively – in this case for in-house patent counsel. On the Science side, alongside a raft of article preparation and management systems, lies Web of Science: the market has looked to this division for the market standard in assessing the importance of articles and their journals to users and peers. The ISI index, acquired by Thomson, remains vitally important to global science research by its definition and measurement of “impact” through citations. The service which incorporates this. Web of Science, is still key to assessment and management of scientific research – and the grants that enable it.
In recent years both sections have attracted, partly as a factor of their success, a great deal more competitive attention. Gone now, for example, are the days when Thomson’s citation indexing totally ruled the roost when it came to measuring the success or otherwise of universities holding grants for science research. This is the age of altmetrics, and we can not only measure more things than citations but analyse the multiplicity of factors more effectively. Elsevier entered the market with SciVal, for example, and there is a feeling now that rapid progress is being made in developing new styles of analysis. Has Thomson Science kept up? Could it be a platform for a new “services to science and research” business at some future point in different hands? In patents, CPA offers a guide to valuations , and also an indication that there is competition in depth, not least from state owned national and international patent offices. Yet Thomson’s offerings would be at the top of the market, both in terms of data held and revenue generated.
Will these high value entities sell separately or together? We may now have at last reached the point where they are more valuable apart. There had been a tacit assumption that the long delay in divesting them was in part about making them more separate as businesses since it is hard to think of a strategic buyer ideally suited to buy both. Taken together they will fetch over $3.6 bn, a big reach for sector trade buyers as well as those private equity players actively interested in this area. There will be some competition considerations as well, in that it may be hard for RELX to buy Science, though other major STM players would have less difficulty, and for some it may suggest a way of diversifying away from a pure reliance on increasingly tough journals only markets. This would have been an ideal buy for Springer before Nature, or Bertelsmann while they were looking at B2B: they seem from this months deals to have decided that education is a better bet. One thing is certain about this divestment, however: where buyers are looking for data-based businesses with a high emphasis on analytics and solutions which add real value to the workloads of users through productivity gain, cost saving and compliance certainty – these two outfits have it in spades!
But what does all this activity mean? For one thing, it suggests that portfolio may have had its day. The sale of the FT and the Economist at Pearson, the divestment of part of Datamonitor at Informa, the trimming down of Penton, the divestment of non-event assets at UBM – all these and many more point to a determination to shed non-core assets in order to put investment heft behind growth in what are seen as more strategically important areas.This is in part a digital effect – networks create full service needs and solutions and tend to duopoly. This is also part of a cycle, and there can be no doubt that portfolio will be back one day, but in the meanwhile there can be little doubt that investors like “slim down to grow bigger”, as long as you slim by getting the right price for the assets. Which means that the real question for Thomson is – did they leave it too late?keep looking »