Pearson makes a tidy turn in the merger market

November 29, 2013

By Quentin Webb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Pearson has made a tidy turn in the merger market. The British publisher, now mainly focused on education, is selling Mergermarket to private equity firm BC Partners for substantially more than it paid for the financial news and data outfit in 2006.

Pearson is being unhelpfully opaque. Still, it appears Mergermarket has proved a good investment. Pearson probably paid about 130 million pounds all in, including a 2009 “earn-out”. Now it touts an enterprise value of 382 million pounds. Without knowing how much net debt or cash the unit carried at sale, it’s hard to know exactly what Pearson will take out. But the headline numbers suggest it has nearly trebled its money.

As for BC Partners, it is paying a full but defensible price. Mergermarket’s EBITDA is likely to be about 36 million pounds this year, a person familiar with the matter says. That implies an EV/EBITDA multiple of a bit less than 11 times. In the wider buyout universe that is not cheap. But the multiple stacks up against similar listed groups – London-listed Informa trades on 11.7 times trailing EBITDA, for example.

Mergermarket’s progress, despite some thin years in M&A, is down to three things. First, it has must-read editorial products. Investment bankers lap up the emails that round up new and potential deals. Debtwire, meanwhile, is keenly followed by credit-market types. Second, it has a strong financial profile, as sticky subscribers bring recurring revenues and good pricing power. Solid cash flows should quickly erode the debt that comes with the buyout. Third, it has stretched sideways to help sustain growth. It bought Xtract, for bond covenant information; Infinata, for biotech data; and Inframation, a specialist in infrastructure finance. Future bolt-ons could target cast-offs from other corporations or the rating agencies.

A thoroughgoing resurgence in M&A activity would of course be good for readership numbers and subscription rates. But for the buyer, the trinity of loyal readers, good cash flows, and room to expand probably constitutes a bigger draw.

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