New York–Reuters announced it is buying StarMine, a research analytics firm best known for its performance measurement of fundamental research. Terms of the transaction were not disclosed. The transaction continues a recent spate of M&A activity in the research segment.
The question is what will Reuters do with StarMine, or, more precisely, what will Reuters-Thomson do with Starmine. StarMine has been morphing from its roots in performance measurement. Over the last two years, StarMine has added stock research capabilities, notably an earnings quality model which we rate very highly (StarMine’s EQ Model is Integrity Research’s Top Pick for quantitative forensic accounting/earnings quality research in 2007). StarMine has also been enhancing its analytics of 13F filings (insider purchases and sales). StarMine is also rolling out research management capabilities.
In its announcement, Reuters indicated it would integrate StarMine in the Reuters Knowledge product which is focused on company and industry-specific research and targeted to investment bankers and buy side analysts. This move would confirm the direction that StarMine has been heading–away from performance measurement and into stock research.
There are a few ironies here. First, Reuters has long agonized over whether stock research violates the sanctity of the Reuters Trust Principles. Presumably Reuters has taken comfort from the fact that StarMine’s stock recommendations are quantitatively driven and not expressed as classic buy/sell/hold recommendations. The press release emphasizes StarMine’s tools, which doesn’t do full justice to StarMine, but the buyers can do what they like.
The bigger irony is why is Reuters buying Starmine and not Thomson. StarMine’s business was built on Thomson’s First Call data. StarMine has had a long-standing relationship with Thomson, which has had good visibility on what StarMine was doing and how it was faring. The reality is that many in Thomson begrudge StarMine its success. Joe Gatto has the smarts to see an opportunity that Thomson overlooked and exploit it with Thomson’s own data.
Personalities aside, there is a legitimate question whether StarMine would be a better fit with Thomson’s First Call capabilities than with Reuters. This is one more thing for the integration team to work through–and they’ll probably get around to it in 2010, by which time StarMine will be part of the Knowledge family.
Launched in 1999, StarMine’s revenues were $14.1 million in 2006 and are estimated at $18 to 20 million in 2007. We would guess Reuters paid around $80 million, but given StarMine’s strong revenue growth over the last 5 years, the multiple could be higher.
The press release follows.
Reuters To Acquire Analytics Company StarMine
Tuesday, August 21, 2007
New York – Reuters (LSE: RTR; NASDAQ: RTRSY), the global information company, has entered into an agreement to acquire San Francisco-based StarMine, a privately held provider of analytics and equity research tools and objective performance ratings to securities analysts.
Reuters plans to retain and continue to work with the existing StarMine management team and their highly skilled workforce. Reuters also plans to continue to support existing StarMine customers and to continue to invest in StarMine’s leading decision-support analytic capabilities.
Michael Peace, Reuters Global Head of Research and Asset Management, said:
“This deal delivers on our strategy of providing high-value content and insight to Reuters customers around the world. StarMine brings a unique set of tools, skills and capabilities that complement our existing, highly-regarded research and asset management product portfolio. In particular, StarMine’s advanced analytics will provide an exciting new level of functionality to our Reuters Knowledge offering. We also believe that StarMine will be a strong complement to Thomson’s offerings following completion of our pending combination.
“This acquisition highlights Reuters ongoing commitment to investing in high-value, cutting-edge products and services, ensuring that we continue to help the investment management and research community make better investment decisions.”
Joe Gatto, StarMine Chief Executive, said:
“StarMine excels at helping clients extract more value from financial information in less time. Joining forces with Reuters will allow StarMine to deliver value over much broader sets of financial information than it does today. Together we’ll be able to meet the needs of more customers globally. We are a natural fit and will be a powerful combination.”
The transaction is subject to customary terms and conditions. Financial terms of the all cash transaction were not disclosed.