Nov
11
Get Smaller to Grow Bigger
Filed Under Big Data, Blog, data analytics, Education, Financial services, Industry Analysis, internet, Pearson, Publishing, Reed Elsevier, STM, Thomson, Uncategorized | Leave a Comment
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?
Jul
27
For “Never” read “When”…
Filed Under Big Data, Blog, Education, eLearning, Financial services, Industry Analysis, internet, mobile content, news media, Pearson, Publishing, Uncategorized, Workflow | Leave a Comment
Long years as an observer of information and media marketplaces have underlined one critical finding: whenever you hear someone say they will never sell an asset, you should be thinking about the circumstances under which they will sell it. I have long applied this thinking to Pearson, or at least since the early days of Marjorie Scardino, since she was so evidently pursuing the meatstore strategy for portfolio decomposition. Under this strategy you first detect the core strategy, in this case the pursuit of education markets globally, and then subordinate the other holdings to that strategy, only investing in non-core where you wanted to ensure that asset values were maintained. Then, every time you needed to make a strategic acquisition, you reached into the meatstore and sold a non-core unit, allowing strategic expansion without heavy debt and encumbrance.
This strategy has moved Pearson from being a collection of brands inherited by Scardino from the family of Lord Cowdray into the largest global force in education markets. It has brilliantly funded strategic purchases like Wall Street English. It has enabled the move from education content to services and now to solutions. It will yet see Pearson emerge as a major global force in online schools and institutions as well as accreditation and content: in a networked world it will be possible to be both a solution, and a supplier to competitor solutions, and a traditional service supplier as markets mature at different speeds and distance or location become less important than measurable quality in educational outputs.
Yet, for all its size, Pearson is still a small player in a large marketplace. And the market is still not fully networked or global, but slow, conservative and locally prone to government spending reduction or cultural differentiation. The downturn in the US disrupted Pearson’s banker market at a time when investment in rest of world markets was the key focus, and slow recovery at a time when governments are getting wise to how to leverage outsourcing, especially in testing and assessment markets, has affected growth and reduced margins. For the first time it may be possible to say that Pearson is shedding non-core assets not to buy strategic positioning but to buy time to allow growth strategies to unfold. This is a new take on the meatstore strategy.
In one real sense the sale of the Financial Times to Nikkei and the currently projected sale of the Economist Group must be good news for all involved. While the Economist had always been managerially independent, the FT had the potential to be a distraction, both in terms of investment needs and managerial time. And the FT, one of the few newspaper groups in the world worth buying, like the Economist, is in part a truly consumer-facing venture. As Pearson has found as it moves into consumer end-user educational markets, the business of selling to consumers is different from institutions. And managing operations that do both is difficult. And indeed structuring the management reporting lines of global consumer/institutional sales and marketing alongside the need for both vertical and global IT strategies is a taxing one. Clearly the two major information corporations who drew on Deloittes in recent years to create global matrix management schema are only in the very earliest stages of getting this right. Increasingly managing process and change is becoming as great a disruptor as technology or markets.
And it could be argued as well that under Pearson’s management the Financial Times has accomplished the huge transition that was required of it, and emerged as a digitally-led business. OK, it’s not a very big nor a very profitable business, but the world must get used to digital information businesses being smaller, and taking time to build margins. Dropping costly print would help, of course. And in the age of automated journalism it may be over-manned, but in that case it has gone to the right home in privately-held, hugely over-manned Nikkei, who will have the patience to see the job through while respecting the tradition. As a bid to move Nikkei off its domestic Japanese base into global markets the move carries less conviction since this is a trick which few Japanese information businesses have managed, but it may be that this is an opportunity for FT management to continue their global brand building in a market where Dow Jones seems to offer less competition than it did in pre-Murdoch days.
Back at Pearsons too, the ball is clearly at management’s feet, since they cannot plead lack of resources once they have completed the disposal of the FT and the Economist, and only have their minority position in Random House Penguin left in the meatstore (though arguably that deal could not have been done without the retention of that stake, so this may not be an active asset for the time being). Can they find an answer to ongoing tests market issues in the now hugely competitive US market (note the sale of the service side of California Test Bureau by McGraw-Hill Education this month). Can they sort the growth prospects in Latin America and make sense of those difficult trading economies? Can they re-align western Europe and exploit the private education potential there? Can they still grow rapidly in China while getting into smartphone dominated markets in India and elsewhere in the region? And all this at speed, using English language learning as a spearhead but not as the sole destination? Well, they have the management talent, though they may not yet have the configuration to make it gel. And they have the technology, though they need to be able to concentrate it on uniform platforms that allow rapid new product iteration. And now, sans FT, they have removed the distractions. The next year is thus critical.
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