Dec
14
When to Consolidate
Filed Under B2B, Blog, Industry Analysis, Publishing, STM | Leave a Comment
Last week’s acquisition news appeared to catch the markets in two minds about when strategic players move to consolidate in recovering markets, and when another stage of private equity or other investment is needed to mop up the debt and sanitize the subject prior to flotation or trade sale.
One saga concerns the sale, after a very lengthy process, of Springer Science+Business. Well, not much business any longer, since the guts of the small B2B operation that went into the mix when Bertelsmann went out had already been sold to offset debt. In an earlier blog post (Springer’s Dance to the Music of Time) I looked at the potential of this deal to help consolidate the STM market, and concluded that while Informa was unlikely to do the trick (and so it proved) , putting Springer alongside Thomson Reuter’s remaining science interests did make sense. Well, if that was an opportunity it went begging, since according to the Financial Times (10 December 2009) a deal has been struck with the Swedish private equity house, EQT, backed by the Wallenberg Family. The reason the strategics kept their hands in their pockets was undoubtedly the debt issue: in the final analysis it looks as if Springer was sold for around €100 million, plus €2.2 billion in debt.
So this means that EQT will put in some fresh capital (€450 million says the FT), renegotiate the debt package at a new level of €1.6 billion, and then presumably refinance to take its profit out of Springer prior to a flotation in happier times when the public markets will be invited to take on these debts. While the initial private equity intervention gave a strong new management team under Derk Haank scope to regenerate Springer, create efficiencies, make economies, restore margins etc – all of which they did in style – what does this new deal do? Does it invest something in the company that it does not have already? Does it improve its current industry-level profitability through creating scope for new investments in technology, or major acquisitions? No, one sadly suspects it does not…in fact, it may just allow a wealthy Swedish family to eat at the same table where formerly the British Coal Board pensioners ate. Not in itself an unworthy cause, but hardly a very progressive one for the industry.
Then again, look at what strategic buyers are doing. Last week mighty Bloomberg bought the fledgling New Energy Finance. Yes, Bloomberg. After years of looking at everything and then emulating what it wanted, the very private Bloomberg has suddenly become an active purchaser. The reason has to be speed. Clearly, as markets move out of recession, comparisons between the major players in the financial services markets will become more acute. Bloomberg is the expensive one, yet Thomson Reuters is thought by many to more than match it in content. This has to be a move about service levels and online commentary: energy is a vital market and New Energy Finance, the brainchild of Michael Liebrich, a man just as energetic as his subject matter, had grown a reputation for good commentary in a key sector. Yet this was a start-up still in the initial growth spurt, so part of this decision has to be about the sort of growth that Michael and his team can do with Bloomberg support, as well as what this content adds to the Bloomberg offering. Why this, why now? The latter half of that question seems to be about speed to market – it is cheaper and faster to buy someone half way there than to start from scatch and try to overtake him, especially if you need what he can give right now. And the energy information market is indeed contracting, as is the market for good financial commentary (Breaking Views would be the analogous case study there).
I should point out here that this blog has now reached 20 entries and while unformed and immature (i’ts the writers, I’m afraid) is very certainly available, and can be taken in a consolidation move while debt levels are as modest as its readership. Offers please.