February 15, 2022

Informa Sells Pharma Product For More Than Expected

Informa revealed back in December that it was looking to sell its Intelligence data businesses. So far, it is off to a good start. According to Bloomberg:

Informa Plc agreed to sell 85% of its Pharma Intelligence division to private equity firm Warburg Pincus LLC for 1.7 billion pounds ($2.3 billion), in a key part of the events and data company’s plan growth plan after the pandemic.

Pharma Intelligence generates about half the operating profits for Informa’s Intelligence division, which Carter said in December was up for sale to redirect more investment into Informa’s Academic and B2B Markets divisions.

According to Reuters:

Informa flagged that Pharma Intelligence, which provides data on clinical trials, drug treatments and medical devices and accounted for about 40% of its Intelligence unit in 2020, had drawn “significant” interest over the past two months.

Analysts at Peel Hunt said the sale was at “great price”, as the remaining businesses could approximately yield a further 700 million pounds, well ahead of the brokerage’s 2 billion estimate for the whole division.

That’s an incredible outcome. In its Capital Markets Day presentation, Informa said that its goal was to return £1 billion of value to investors upon the completion of the deal. When the other two assets—finance and maritime—are sold, it will likely have £2.5 billion to work with.

First, a note on the deal. A £1.9 billion acquisition values this division at 15.5x revenue, or 36.5x EBITDA. For high-quality data about clinical trials, it’s not surprising that private equity had to fork over such a multiple. Compare that, for example, to Axel Springer’s $1 billion deal for Politico. (Disclosure: I work for Morning Brew, which is owned by Axel Springer, and had nothing to do with that deal. Way above my paygrade!)

At the time of acquisition, it was reported that Politico was generating $200 million in revenue, which suggests a 5x revenue multiple. However, Politico is actually two businesses: the high-priced enterprise Politico Pro and then the free ad-driven business.

In 2018, Vanity Fair reported that more than 50% of Politico’s revenue came from its Politico Pro product. If we assume that, in 2021 60% came from Pro and 40% came from ads, it starts to look like a great deal. Had the Pro product been valued similarly to Pharma Intelligence, Politico Pro alone was worth $1.8 billion before we add in another $260 million for the free site—my basis for this is that The Hill, a competitor, sold for 3.25x revenue.

There are two things to say about this before I move on. First, Politico Pro is different than Informa Intelligence, so maybe 15.5x revenue was already too lofty for Pro. In 2018, it earned $2 million of profit on $113 million in revenue. If profit had grown linearly, it was barely hitting $4 million in profit compared to Intelligence’s 43% margin. And second, everything ultimately boils down to the buyers on the market. Politico as a blended free/enterprise business was, perhaps, less interesting to private equity than a pure-play enterprise data product.

It’s always fun to compare deals and see where things settled. I digress…

If these businesses are so valuable, why is Informa getting rid of them, to begin with? If you could get management off the record, they’d tell you that they didn’t want to sell it. These are the exact types of businesses that b2b companies like Informa want to own. The subscription contracts are long-term and the revenue is high margin as we saw above.

On the record, management would tell you that Informa shareholders have been through a lot over the past two years and deserve a return of cash. And, just as importantly, it’s a good opportunity to invest in the further digitization of Informa.

It’s all part of Informa’s plan to get revenue back to 2019 levels. According to Informa, it’ll take until 2024 to get there, but it needs resources. Selling these businesses at high valuations is a smart approach to get the necessary cash, both for shareholders and long-term investing.

The big question is what comes next for Informa. Colin Morrison at Flashes & Flames predicts that Taylor & Francis, which publishes journals and books, could one day be sold.

There is no current suggestion that Taylor & Francis will be sold and current digital investment is making it more valuable. At this stage of the slow recovery in exhibitions, that seems like a comfortable position for Informa. But it also seems reasonable to predict that any kind of return to the pre-pandemic growth levels of trade shows might just prompt divestment of the slower growth T&F. The creation of an exhibitions pureplay will again become attractive to investors – eventually.

Said another way, tradeshows are currently taking time to get back to pre-pandemic levels. Therefore, Taylor & Francis offers a certain level of diversification. But once the pandemic is truly behind us, Informa could decide to streamline the business, sell Taylor & Francis, and go all-in on tradeshows.

But the first step is to get the balance sheet and investors in order. This is a big win for Informa on its quest to get back to 2019 levels. Returning £1 billion to investors and still having over £1 billion to invest could make for a very compelling next few years for the British company. Time will tell.

Binance invests in Forbes

CNBC reported that Binance, the world’s largest crypto exchange, was investing $200 million into the Forbes SPAC.

Investors have grown skeptical of SPAC deals generally, and media deals in particular, in recent months amid the broader stock market retrenchment. Binance will replace half of the $400 million in commitments from institutional investors announced by Forbes in August, said the people, who declined to be identified before the transaction is announced.

It’s an interesting deal and I have thoughts as to why Binance decided to make the move. But Sara Fischer at Axios has some additional details on the deal worth exploring:

Binance’s money will replace half of a $400 million so-called PIPE that was raised as part of the Forbes SPAC, officially known as Magnum Opus.

The SPAC merger is structured so that Forbes’ current owners, IWM (95%) and the Forbes family (5%), will receive a $400 million secondary round when the SPAC merger is complete.

In other words, this is a way for legacy holders of Forbes to get out with Binance fronting the bill. As Fischer said, “taking money out now sends a signal from the majority investor … that it doesn’t have confidence in the company.” You do not take such large amounts of secondary unless you know the business is going to struggle.

But why did Binance play ball? I have three theories here.

The first is the brand. While here in the United States, the Forbes brand doesn’t carry the same respect as it once did, in other parts of the world, it is still legitimate. According to the SPAC presentation, there are 45 worldwide editions across 27 different languages. That’s worth something.

The second is its size. Binance is a global exchange that needs to acquire new users to continue growing. Forbes has a ton of traffic. My suspicion is that Binance will find ways to partner with Forbes in a way that can be lucrative to the exchange. Why wouldn’t it?

The third is notoriety. Digital Currency Group owns CoinDesk, which is one of the largest media companies dedicated to crypto alone. Why shouldn’t CZ (CEO of Binance) also own a media asset? Obviously, he isn’t the largest shareholder, but I wouldn’t be surprised to see him continue acquiring more shares as the years go on.

There’s going to be a lot of talk about how this is an attempt at putting Forbes on the blockchain or Forbes is going Web3, but I think it’s much simpler. The brand and traffic are incredibly compelling to an exchange that is fighting for market share and, ultimately, there’s an ego play. Who wouldn’t want to say they own Forbes?

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