Jul
11
Canadian Hunter bags Bull Moose
Filed Under B2B, Big Data, Blog, Industry Analysis, internet, Publishing, Search, Thomson, Uncategorized, Workflow | Leave a Comment
Canada is a large and wonderful country where things do tend to come in large packets. Land mass. Tar sands. Forests. And now information market deals. Toronto-based Onex Corporation (in company with Barings Asia) have paid $3.55 billion for Thomson Reuters Science and Intellectual Property. This represents a premium over the market estimates of around $3.2 billion being bruited about in London and New York last week, and the fact that it is a cash offer, unconditional, and requiring nothing but routine regulatory clearance anywhere will come as a great satisfaction to its Canadian sellers as well as, presumably, it’s Canadian buyers. At least there could be no reasonable criticism from shareholders that cash had been left on the table, a thought that obviously occurred to some when the last divestment, Thomson Healthcare, went to a PE firm for $1.2 billion, only to be resold two years later to IBM Watson Health for exactly double that sum.
And so Thomson Reuters is now a svelte and streamlined non-portfolio operation organized around offering services across the whole corporate workflow, from capital and equity markets through the spectrum of global corporate investment environments to tax and corporate law and risk and governance and compliance. The whole angst and agony, in other words, of corporate markets in a sluggish post-recession corporate world where growth is hard to find. Yet putting capital raised by divestment to get growth is just what Thomson Reuters must strive to do. They now have the right players in the orchestra – now they need the score and an able conductor. In the siloed world of a large portfolio player this was not so important since each investment justified itself – or didn’t: if growth is now a necessity, and it is, then the whole corporate body needs a new energy to fill the gaps with new product development, to embrace customer participation by innovating across the old divisional structures to react to emerging needs, by being agile and re-iterative in bringing innovation to their markets.
Easier to type than to do. And to be fair Thomson Reuters do many good things already. But the most noticeable factor about post-portfolio players desperately regrouping after divestment is their difficulties around concentrating data in the right places. All those siloed data empires and all those CTOs and their defensive strategies and their unique database configurations. This is hard to break down: no one sees data strategically, or at least strategically enough. There is no more important decision than deciding on the interfacing systems which will enable product development teams in any part of a large niche-focussed group like Thomson Reuters to bring data from any silo in the group and mash or remix it with other data types or with end user data. By rights this is a board decision and must carry the stamp of the CEO and COO. Thomson Reuters now have a chance to get this right, or lapse back into post-imperial stagnation, where powerful operating company barons can shield and block the sharing of data, which, wherever it comes from, is the lifeblood of the company and the key to growth.
And what about Onex and it’s shiny new toys? Well, it has bought the Thomson Reuters cash cows in the hopes that the cash will continue to flow while they break it up and sell the parts. Aging though it is, and desperately in need of a face lift that folds in altmetrics and the revolutionary changes arising from usage data for the measurement of “good science”, Web of Science is still a necessary component of every university library worth its salt. On the other side of the acquisition, IP Advisor, Derwent and services in the trademark registration area are wonderful long term assets and should hold up during the two years it will take to separate the two parts, making savings in overheads which will be unpleasant but helpful in getting the margins to an even more desirable pitch in both parts of the former business. The former owner neglected, in the last decade, to invest in this cash cow what was needed to refresh its product offering and undertake the M&A work it needed to do. This was the company that needed to buy Mendeley, not Elsevier. This was the company that needed to buy Altmetrics, not Nature. And so on… But one other thing is certain. The new buyer, while there may be a few cosmetic deals, will not do so either. That is not the name of the new game plan in Toronto.
The cost which the new owners do have to bear is the cost of the break-up of the two parts, each of which is destined for a different ultimate buyer in the next two years. Here is the dream scenario. Cinven are the PE owners of CPA Global, one of several challengers to the Thomson Reuters position in patent and trademark information. They might have been more serious bidders in this round but for the fact that they did not want Science. They may face some regulatory pressures, but they could always disgorge some of the current Thomson Reuters holding in this area to Lexis, who are proving hungrier in this sector lately. On the other flank, Thomson Reuters Science is believed to have been a target of Springer Nature for many years. That company, is owned by BC Partners (who may indeed have been early stage bidders but probably did not like the IP side if they were) and by Holtzbrinck. It would be strange if these partners did not eye the Science division as a natural add-on, either before or after the IPO due in 15 months time. Would that deal add a final touch to their valuation or not?
So will the cash cow go on producing for two more year without being fed? And will this enable the Toronto PE men to exit at $ 5.2 billion plus after debt and loans are taken into account? We will all have to wait for those answers. All we know today is that a very big tree has just been felled in the Canadian information forest.
Jun
24
On Barriers to Entry
Filed Under B2B, Big Data, Blog, data analytics, Education, eLearning, Financial services, healthcare, Industry Analysis, internet, Publishing, Reed Elsevier, Search, STM, Thomson, Uncategorized, Workflow | Leave a Comment
On the morning after the British electorate performed the largest mass suicide attempt in even our eccentric history, thoughts naturally turn to the future. Will a Europe that envies English as a Lingua Franca and which would like Start-up City Europe to be Berlin or Barcelona instead of London’s Silicon Round-about, find ways, in this messy divorce, to challenge the status quo in European information marketplaces? Like everything else I have heard this morning, it is “too early to tell”, but while thinking about competition and competition rules, it may be worth speculating on something else. Is competition what it used to be, and what has happened to the “barriers to market entry” that seemed so important to us all in pre-digital non-networked marketplaces.
And it may be necessary to remind those under a certain age what those historical barriers to entry were. The greatest of them was Ownership. Primarily the ownership of Intellectual Property. And first and foremost the possession of Copyright in Proprietory Information, Data or Content. For 70 years from the death of the author. This Ownership position was also reflected in Brand, and with luck one could combine the two to create quasi-monopolistic positions. Then add domination of distribution networks, exclusive positions with third party agents in important subsidiary markets. Then look at the Know-how created to run these businesses, and the way it was passed like an inheritance from generation to generation of long-serving staff and one can easily see how intimidating and expensive it was to attempt to compete. As the tyro CEO of the European Law Centre in 1980, I looked at Sweet and Maxwell (late eighteenth century) and Butterworth (late nineteenth century) and wondered, although my online product was a wonderful innovation, how I could possibly compete.
The short answer is that you couldn’t. Thomson bought one and Reed the other, acknowledging that if you wanted market share you had to buy it, or condemn yourself to niche plays in subsidiary markets that these Titans disdained. But now turn your mind to market entry today. Established plays who have put down roots are almost a challenge to disruptive start-ups rather than a threat. I grapple now with the opposite problem of valuation: how do you place value on ex-print – migrating – to digital companies when it is easier for a start-up to enter their markets than it is to rent a garage in London from which to do the disrupting? In an amazingly short time, the Age of Content has collapsed around us in all but entertainment marketplaces. It is not just that content became commoditised. It is also to do with our expectations. As the costs of computing and storage continue to collapse in relative terms, volume is no longer a factor here. I read the suggestion in Ars Technica this week that it will soon be possible to download major data collections like Elsevier’s ScienceDirect and provide them to every user. Which reminded me that you could download major collections (SciHub) a and provide them free in Kazakstan.
While major publishers still own the copyrights, theses ownerships no longer present barriers to entry. As I have so often written here, users want solutions, and preferably ones that slot into workflow. So where do we look now for barriers? In a world where users want a comprehensive view of all of the content/data/information which may be pertinent to solution, we can always simulate the content we do not have even if we cannot acquire it as Open Data or find it on the Open Web. But we can add value to it, both in terms of semantic web treatment, and entity extraction for building taxonomies and ontologies. Our knowledge system is both a differentiator and a barrier if it becomes a market standard. Indeed, much of our software performs barrier roles – even if it is hard to protect and, even if our techniques achieved patent protection, that is a short term gain at best.
But where else can we turn? Well, for some an acquired skills base may be a barrier against raw star-up competition. With many players seriously concerned about price competition from well-funded second stage offerings seeking to buy market share on price, it is also important to inspect the state of the Golden Handcuffs that hold the employed skills base in place. And the same applies to the customer relationships. Since customers are a very likely source of competitive pressure, it becomes important to “value” the customer and his relationship with you – are you so expensive that it will soon be cheaper for him to acquire your technology on the market and do your process internally for himself? What was the cost of acquiring that relationship and how quickly could you build another one? What parts of the relationship are defensible from competitive attack on either price or value?
It now becomes harder to value a company in terms of barriers to entry because many of these elements involve valuing intangibles. In a networked society location is no longer a very important factor, and in a network where brands can be created and built in a remarkably short time there is little sacred about trust and brand authority in the abstract. Yet markets still keep asking about defensible value positions, and none of the old answers work anymore.
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