M&A Roundup

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New York—Despite turmoil in financial markets, M&A transactions in investment research firms during the first half of 2008 are on a pace to match or exceed the number of transactions in 2007. However, the dollar volume of transactions in 2008 is less than 2007, reflecting a greater number of minority investments. We expect transactions to continue in the second half of 2008, as consolidation in the investment research industry continues.

Through June, there have been seven transactions involving investment research firms. Three of the transactions were undisclosed minority investments made by Goldman Sachs in investment firms: TrimTabs and Epocrates announced in February and Quantitative Services Group in March. UBS’s minority investment in Integrity Research was also announced in March

Two of the transactions were technology related. Coleman Research Group purchased a research management software platform, Clio, from Philadelphia-based Endowment Capital Group in April. State Street purchased Financial Sockets, a leading provider of commission management services, for an undisclosed amount in March.

Morningstar paid $51.6 million for Hemscott, a UK based provider of equity data sold to investors and the investor relations market. The transaction represented a 3.5x to 4x revenue multiple based on our estimates.

In 2007, there were 11 transactions involving investment research firms. The largest was Silver Lake Partners $200 million minority investment in Gerson Lehrman Group in December, representing a 4x revenue multiple, based on reported valuation numbers. Another notable transactions in 2007 included Xinhua Financial’s acquisition of Glass Lewis in March for $45 million, followed by its sale of Glass Lewis to Ontario Teachers for $46 million in October following criticism of Xinhua’s corporate governance.

Reuters acquired Starmine in August 2007 for $85 million, an estimated 4.7x revenue multiple. IHS Inc., a publicly traded information and consulting firm, acquired John S. Herold, a well-regarded independent research firm specializing in the energy industry, for $48 million in August, an estimated 3.4x multiple.

Although we expect transactions to continue in the second half of 2008, the dollar volume of transactions, even excluding Silver Lake’s investment in GLG, are not likely to match that of 2007.

Corrections and Clarifications: In last Thursday’s entry we stated that Evalueserve had a presence in all 7 continents. In actuality, they only have operations in 6 continents, with Antarctica excluded.

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