Question: A common question SageCircle has been receiving concerns the likelihood that there will be acquisitions of analyst firms during the current recession.
During a recession, companies with strong balance sheets often acquire companies with weaker financials because the purchase price has been cut. Both Gartner (cash at September 30th was $145.2 million) and Forrester (NASDAQ: FORR, cash and marketable securities at September 30th were $254 million) have a history of acquisitions. They also have dedicated M&A teams and CEOs that assure Wall Street during quarterly earnings calls that acquisitions remain a potential tactic “at the right price.” As a consequence, there is always the possibility that one or more small or mid-sized firms will be acquired by one of the two major public firms.
Who could be acquired? Almost any firm. Obviously mid-sized firms like AMR Research that have gone through recent job actions could be thought to be shoring up their finances to ride out the recession… or make themselves a more attractive acquisition target by reducing cost structure or eliminating duplicate reearch coverage.
Who could be buyers? While Forrester and Gartner have the requisite strong balance sheets and motivations, they are not the only potential buyers of analyst firms. Companies that have made analyst firm acquisitions over the last few years include Datamonitor, Informa, Mastercard and TechWeb. Mastercard? Yes, there might be totally unexpected players out there that take everybody by surprise such as when MasterCard acquired Tower Group from Reuters Enterprise in May 2004.
Even IDC could be an acquisition candidate under the right circumstance. IDG to a certain extent is similar to its earlier rival Ziff-Davis. Privately held Ziff-Davis (periodicals, book publishing, on-line tech news sites, events, consulting, and analyst divisions) was broken up in 1994 after family patriarch and controlling owner Bill Ziff decided to sell the company. Privately held International Data Group (periodicals, book publishing, on-line tech news sites, events, consulting, and analyst divisions) could be broken up if controlling owner billionaire Pat McGovern decides to sell the company. McGovern is in his early 70’s so it is not inconceivable that he could be thinking ahead toward retirement.
SageCircle Technique:
- Clients of analyst firms, both end users or vendors, need to track the financial and ownership stability of their primary analyst firms, especially during contract renewal times
- Analyst relations programs need to put contingency plans in place in case the employer of one their key influencial analysts is involved in an merger & acquisition event
Bottom Line: The current recession makes it more likely, not less so, for an acquisition to occur in the analyst ecosystem. Clients and AR can prepare themselves for such an event by keeping a finger on the pulse of relevant analyst firms and putting into place plans to handle any disruption that comes with any M&A event.
Question: AR professionals – Do you have plans and processes in place to handle when the employer of a key analyst is acquired? Clients – Do you insert terms and conditions into contracts of firms you suspect are a potential acquisition target?
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The Harte-Hanks acquisition of Aberdeen Group in 2006 could be included in the “totally unexpected players” category. And it created another issue for AR to consider. I was running global AR for Informatica at the time and was very concerned because Harte-Hanks also owned Trillium Software, an Informatica competitor in the data quality space. Talk about vertical integration.
To their credit, Aberdeen management anticipated concern and were proactive in addressing it. The “Chinese Wall” metaphor was used and Aberdeen management said they would not cover Trillium, as I recall, to avoid conflict. For my part, I continued to work with them, but was hyper-vigilant for warning signs. Coincidentally, the potential for Aberdeen conflict followed me to address hygiene software vendor, QAS, a small business unit of Experian where I ran North American marketing. Experian competes with Harte-Hanks. In the end, Aberdeen seemingly remained unbiased.
The bottom line is that AR staff should look very closely at all aspects of any company acquiring a research firm with which they do business. This includes other holdings, investments, and board composition.
Hmm. Arguably, the vacuum created by the acquisitions of Meta and Giga has never been filled. So the impetus to acquire to take out the competition is not so much there. Neither is skills acquisition, as (equally arguably) the ‘top’ companies are already skilled up. So any M&A would concern consolidation of smaller players, if at all, which wouldn’t be that interesting from a ‘watchers’ perspective. AMR, Yankee, perhaps – but it wouldn’t have as dramatic an impact as the last M&A round.
As pointed out, IDC could be the surprise. But that isn’t really dependent on the climate, more the will of the owner.