In two separate announcements today, Reed- Elsevier has unveiled a sweeping and profound change in direction for the company: it is acquiring publicly-held ChoicePoint for an impressive 4.2 times revenue and 14 times earnings, and plans to divest its Reed Business Information unit.
What's going on?
In a nutshell, Reed is making a huge statement that the future is now, and the future is all about infocommerce: the integration of high value content, enhanced by software, into customer business processes and workflow.
ChoicePoint, a 1997 spin-off of credit reporting agency Equifax, is a public records aggregator much like Reed Elsevier unit LexisNexis. On that basis alone, the acquisition makes perfect sense. But also like LexisNexis, ChoicePoint has been adding value to this mass of often mundane content by mixing, matching and merging this data, then powering it with software so that it quickly and efficiently addresses specific business needs. ChoicePoint has services that do employee background checks, scan for potential deadbeat tenants, spot healthcare fraud, insurance risk management, you name it. The business is a glove fit with the existing Risk Management business of LexisNexis. ChoicePoint also does a lot of business with the government, particularly in the law enforcement arena, and that means it will substantially leverage Reed-Elsevier's 2004 acquisition of Seisent, one of the largest repositories of public information.
Any way you come at this, the fit is sublime and the scale and reach of the combined organization will be huge, so much so that there will likely be heavy regulatory scrutiny of this deal. But the strategic handwriting is on the wall: Reed-Elsevier is increasingly placing its bets on its LexisNexis unit, and within that unit, its Risk Management Division. And while risk management sounds like a hum-drum market in which to be seeking growth, it is a market that is inherently data-intensive, values sophisticated content/software for risk analytics, and by its nature will allow Reed-Elsevier to tie itself in to the operational plumbing of its customers. And that's the holy grail for data publishers who understand where this industry is headed: those who can deeply embed themselves in the businesses of their customers know that they won't -- and in many cases can't -- ever be asked to leave. Welcome to the Nirvana of the lifetime customer.
And while acquiring ChoicePoint, Reed- Elsevier also plans to shed its Reed Business Information unit, (although not its Reed Exhibitions unit, a seemingly financially- driven decision and not a strategic one). Despite such powerful brands as Variety and Publishers' Weekly, and impressive rates of online growth, Reed Business is struggling, like so many trade magazine publishers, to offset declines in its print revenues, where so much of its business still resides. Indeed, in its press release, you can sense the relief of Reed-Elsevier as it frees itself of the "inherent cyclicality" of advertising-based revenue streams.
Overall, this evolution mirrors in many ways the evolution that's been taking place at Thomson, although Thomson saw the digital workflow future and started acting on it a number of years before Reed. Regardless of timing, both these companies are looking stronger for these major shifts, and the power and value of workflow-integrated data products is more clear and certain than ever before.