Bellwether Research Valuations Down 30% Year-to-Date

By Sanford Bragg October 12, 2022

Valuations for large publicly traded research and information firms declined 30% through September 30th 2022, according to analysis prepared exclusively for Integrity Research by D.A. Davidson’s Technology Investment Banking group[1]

Valuations for the bellwether stocks ended the third quarter of 2022 at 5.3x estimated 2022 revenues, falling 29% from the year-end multiple of 7.6x.  The current year earnings multiple of 17.4x as of September 30, 2022, was 30% below the year-end value of 24.4x.  Both metrics remain above their pandemic lows of 4.1x revenues and 14.8x earnings.   

Sources: PitchBook, D.A. Davdison

D.A. Davdison 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 information companies that also offer investment research-related information services.  The ‘trim mean’ metric used to calculate averages excludes the highest and lowest values from the calculation.

Ken Marlin, Vice Chairman of D.A. Davidson’s Tech Investment Banking group, 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 may be skewed for a variety of reasons including currency fluctuations,” he said.

Third quarter 2022 revenue and EBITDA multiples

Revenue multiples during the third quarter of 2022 ranged from 1.3x estimated 2022 revenues for Forrester Research, a global industry research and advisory firm, to 9.4x current revenues for rating agency/information supplier S&P Global.  The median value was 4.6x 2022 revenues and 4.2x forecasted 2023 revenues. Note that Euromoney has been removed from the analysis since going private in July for nearly $2 billion (representing about 3.9x next twelve-month revenues and about 16x next twelve-month earnings. 

S&P Global (9.4x 2022 revenues) and Moody’s (9x) enjoy the highest current revenue multiples among the firms tracked. Removing these two firms from the public company set would result in an arithmetic average EV / revenue multiple of 3.7x current year revenues, which might be closer to a representative benchmark for research firms.

 Sources: PitchBook, D.A. Davdison

EBITDA valuations in the third quarter ranged from 9.9x estimated 2022 earnings for consumer data provider The Nielsen Company to 24x current year earnings for Morningstar.  The trim mean values (excluding the highest and lowest values) were 16.9x 2022 EBITDA and 14.8x 2023 EBITDA.  Excluding the two highest values gives an average current year EBITDA multiple of 15.6x.

Revenue growth in 2022

Analysts continue to project healthy revenue growth for the bellwether information companies in 2022, with median estimated revenue increases at 9.4%, almost as much as 2021’s 10.8% growth rate.   The projected growth is mainly being driven by S&P (+44%), reflecting its merger with IHS Markit.  Excluding S&P, average projected revenue growth is a more modest 6% for 2022.           

Cautions on multiples

Since most 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 also 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.

D.A. Davidson Companies is an employee-owned financial services firm offering a range of financial services and advice to individuals, corporations, institutions and municipalities nationwide. Founded in 1935 and headquartered in Montana, with corporate offices in New York City, Denver, Los Angeles, Portland and Seattle, the company has approximately 1,400 employees and offices in 28 states.

[1] D.A.Davidson’s investment banking division is a full-service investment bank that offers comprehensive financial advisory and capital markets expertise. D.A. Davidson’s technology investment banking group has deep understanding of the investment research sector as well as application software, financial technology, infrastructure software, vertical software, technology-enabled services, digital infrastructure, internet and digital media, and data and analytics.  Together with its European strategic partner, MCF Corporate Finance, D.A. Davidson originates and executes transatlantic M&A transactions under the common brand of D.A. Davidson MCF International. 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. For more see www.DADavidson.com.

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