What Consolidation?!

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New York – Our internal database of research providers passed 3,500 firms in July, giving the lie to our expectation of pending consolidation in the alternative research space.  Given the pressures of reduced commissions (and revenues), one would expect a significant consolidation in the industry.  Outside of the ESG sector, it isn’t happening.

We have been predicting consolidation for over five years.  In previous posts we have documented the growth of alternative research beginning with the end of fixed commissions in the 1970′s, and the explosive ‘Spitzer effect’ in 2003.  We thought for sure that research firms would exit the business as the pot of settlement gold proved to be an illusion.

Meanwhile, our database keeps growing.  Over the last year, our internal database has grown 33% from 2,664 firms to 3,542 firms.  Our client-accessible database has grown 27% from 1,211 firms to 1,534 firms.  Not all the additions are new firms.  Most are existing firms that we have discovered, have developed services for financial analysts, and/or are increasingly of interest to investors.  They don’t just do fundamental research — they can be industry consulting firms, survey firms, expert networks.  We also track niche database providers and consulting firms.  Basically, any firm that can contribute to the research process, and potentially be paid for by commissions.

The fastest growing segments in our client-accessible database are within our primary, specialized and economic categories.   In the economic category, growth is coming from policy research firms specializing in government/legislative analysis (surprise!) which have increased from 17 firms to 24 over the last year.  Some are new firms resulting from new entries and defections from Washington Research Group after the breakup of Stanford Financial.  Also growing are firms providing analysis of political/country risk.

Within primary research providers the fastest growing segments are political intelligence firms, survey firms and investigative research.  Political intelligence is a new category we created in the last year to accommodate an influx of new subsidiaries created by Washington lobbyists to provide investors with direct access to knowledgeable Washington insiders.  Our coverage of survey firms has grown from 58 firms to 92 (+59%), but most of these are existing firms that are of interest to the financial community.  Investigative research is a smaller category, but also growing.

In the specialized category, the fastest growing segment is industry consulting firms (141 to 204, up 45%).  This reflects increased interest from investors rather than innate growth in the number of firms, since most of these firms are pre-existing.

We have also been adding research firms located outside the US to our client accessible database.  Over the last year, our coverage of firms based in Asia Pacific has grown 72% from 74 to 127.  Coverage of firms based in Latin American and the Middle East/Africa have grown even faster, but on small bases.  Our coverage of European firms has increased 31% from 265 to 349 firms.  North American firms grew 20%,  and now represent 67% of the firms in the client database, down from 71% a year ago.

Because most of the firms we are adding are existing firms, the growth of our database of research firms is not conclusive evidence.  Nevertheless, it is a long wait for the consolidation we expect…

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