According to analysis prepared exclusively for Integrity Research by Marlin & Associates, the international M&A advisor, average valuations for large publicly traded research and information firms increased in the second quarter of 2017 to 4.8x trailing 2016 actual revenues, compared to 4.5x 2016 revenue last quarter.
Average EBITDA multiples also increased to 15.3x trailing 2016 EBITDA relative to last quarter’s value of 14.7x for 2016 EBITDA.
Average revenue multiples have increased from approximately 3x in 2012 to 4.5x currently. Average EBITDA multiples have improved from approximately 10x in 2012 to over 15x currently.
Marlin & Associates has prepared these special valuation benchmarks for the investment research industry in collaboration with Integrity Research Associates. The benchmarks monitor the valuations for publicly traded firms that offer research-related services. The ‘trim mean’ metric used to calculate averages excludes the highest and lowest values from the calculation.
Marlin cautions that averages can be misleading and that no one multiple or combination of multiples should be used as a predictor of the future value of any company. Growth rates – which often help drive value – may include acquisitions while EBITDA profit margins – another value driver, may be skewed for a variety of reasons including currency fluctuations.
Second quarter revenue and EBITDA multiples
Revenue multiples this quarter ranged from 1.8x trailing 2016 revenue for Forrester Research, a global industry research and advisory firm, to 7.1x trailing revenue for rating agencies S&P Global and Moody’s. The median value was 4.4x trailing 2016 revenues.
EBITDA valuations in the first quarter ranged from 11.4x 2016 results for Euromoney Institutional Investor to 26.9x 2016 for Gartner, a leading technology industry research provider.
Marlin & Associates is an international investment bank and corporate advisory firm based in New York City, with offices in San Francisco, Washington, DC, and Toronto. The firm advises owners and managers of U.S. and international companies that provide software, data, and related services and has a particular expertise in advising owners and managers of firms that provide business intelligence, marketing intelligence, fintech and healthcare IT. For more information please visit www.MarlinLLC.com.
Improving top line growth
Analysts expect average revenue growth in the industry to increase to 9% in 2017 from 6% in 2016. But averages can be deceiving – with analysts expecting Gartner to grow 39% in 2017 and Informa to increase its revenue by 29% (including the impact from acquisitions) while they forecast that revenue for IHS Markit will shrink by 3% as it consolidates after the merger. Revenue growth for many of the firms in information and market research industry is anticipated to be in the low to middle single digits – as it was in 2016.
Cautions on multiples
Since the majority of investment research businesses are either privately held or vertically integrated within broker-dealers, selecting publicly traded bellwethers for investment research is a challenge. All the firms selected offer research services, but in many cases research may be a minority component of overall business.
Note that the valuation multiple of a large publicly traded firm that is a leader in its niche may not be a valid comparable for assessing the value of smaller firms or those that are not market leaders. As a result, valuations for smaller privately held research firms may differ markedly from those implied by these multiples.
 Marlin & Associates Securities LLC, a wholly owned subsidiary of Marlin & Associates Holding LLC, is a broker-dealer registered with the Securities and Exchange Commission and is a FINRA/SIPC member firm (www.finra.org). For more see www.MarlinLLC.com. Nothing contained herein should be construed as a recommendation to purchase or sell any security. The information herein is not fully comprehensive, nor does it consider specific objectives, circumstances or needs of individual recipients.
 Valuations reported last quarter included MSCI, which has been removed from the analysis because research products represent a small fraction of the firm’s financials.