2011 in Review (M&A)



Last January, we predicted that 2011 would be a tough year for the research industry, and particularly for independents.  We understated the case.  At the Investorside Member’s Day meeting in April, participants said the three key challenges were sales and distribution, payments, and compliance, all of which continued to be laments throughout the year.

Greenwich Associates reported U.S. equity commissions declined 12% to $11.6 billion for the period from mid-February 2010 to mid-February 2011.  The Tabb Group forecasted a 17% decline in commissions during calendar year 2011.  Tabb predicted commissions would fall to $7.25 billion by year end.

Greenwich said that bulge firms were gaining share, receiving 68 percent of U.S. equity commissions, up from 65 percent in their 2010 survey.  Agency brokers were squeezed as the portion of commissions allocated to research climbed to a 10-year high of 59%, the result of investors maintaining research relationships in the face of declining commissions.  For similar reasons, commissions allocated to pay for corporate access increased to 21%.

The percentage of U.S. asset management firms using CSAs increased to 76% from 65% in 2009 according to the Tabb Group.  However, volumes going through CSAs remained flat around 22%.  Tabb also reported consolidation in the number of CSA brokers used.

According to Challenger, Gray & Christmas, financial services firms announced 56,191 job cuts through November, an increase of 162% from 21,430 layoffs in 2010.

Mergers & Acquisitions

We saw many mergers and consolidations during 2011, and expect this trend to continue into 2012.  Given the environment in 2011, we suspect there are more deals to come.

In February, Ticonderoga Securities LLC purchased Soleil Securities Corp.  Terms were not disclosed but were rumored to be negligible.  Alpha capture platforms First Coverage and youDevise Ltd merged in March and the combined entity was renamed the TIM Group.

In May, Forrester Research, Inc. acquired Springboard Research, a Singapore-based provider of IT industry research for $9 million cash less certain holdbacks and earn-outs, representing a multiple of around 1.6x revenues.  Business Connect China, a China-based expert network, merged with Evalueserve’s Circle of Experts and Tribeca Insights to form a new consolidated expert network, Advantus Global.

In June, Investment Technology Group (ITG) announced its acquisition of Ross Smith Energy Group for $38.5 million in cash, representing a 2.6x multiple on Ross Smith’s prior year revenues of $15 million.  Citic Securities, China’s largest investment bank, acquired 19.9 percent of Credit Agricole SA (ACA)’s brokerage units, CLSA and Credit Agricole Cheuvreux, for $374 million.

Also in June, Euromoney Institutional Investor PLC announced its acquisition of Ned Davis Research Group a prominent strategy research firm for a maximum price of $173 million including earnouts. The maximum purchase price was approximately 14.7 times Ned Davis’ 2010 pre-tax profits and estimated 2.5 to 3.0 times revenues.

In July, CVC Capital Partners, a private equity firm, announced it was planning to acquire ConvergEx Group, parent of Westminster, in an all cash transaction of $1.9 billion but dropped the deal in December because of  investigations by the U.S. Securities and Exchange Commission and the Department of Justice into  certain non-electronic trade-execution practices by the Bermuda-based ConvergEx Global Markets subsidiary.

In August, equity research firm Sabrient Systems acquired the forensic research portion of Gradient Analytics, including the use of the brand “Gradient Analytics.”  Bloomberg, L.P. announced the largest acquisition in the company’s 30-year history with a $990 mln bid for BNA, a privately owned legal, tax and regulatory information company originally known as the Bureau of National Affairs.

In September, State Street Corporation purchased Pulse Trading, a Boston-based agency broker, which also markets independent research services to its buy-side clients.

In October, CNBC reported that Roubini Global Economics was for sale with projected 2011 revenues of $14 million and a net loss of $2 million.  No transaction has been announced.

In November, Washington Research Group, a prominent policy research firm orphaned by the demise of MF Global, found a new home in Guggenheim Partners.  Markit, a financial information provider best known for its CDS data, purchased Quantitative Services Group (QSG), an independent research providing equity research and trading analytics.

Also in November, Gerson Lehrman Group (“GLG”), the leading expert network, made a minority investment in Shanghai-based Ushi.com, a Chinese version of LinkedIn as part of a $3 million funding round.  Moody’s Corp. acquired a majority stake in Copal Partners, a $50 million research outsourcing firm, for an undisclosed sum.



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