Acquisitions Further IHS' Impact in Energy, Environment Space

It's certainly been a busy week on the M&A front for IHS Inc. Along with its acquisition of Prime Publications, which gave IHS 50 percent ownership of maritime information provider Lloyd's Register-Fairplay, IHS this week announced acquisitions of Dolphin Software Inc. and Environmental Software Providers (ESP) for $43.5 million.

Dolphin Software develops and uses chemical data and formula information to help companies in their Total Chemical Management initiatives (which include sustainability, supply chain greening and social responsibility). Dolphin's software enables clients to record and track chemicals they use and store. ESP is an enterprise information solutions provider that helps companies manage their sustainability programs. The company's offerings include greenhouse gas management, air, water, and waste management, internal and regulatory compliance assurance incident management and management of emissions allowance and credit portfolios. ESP serves customers in 60 countries.

The benefits that these acquisitions are expected to yield should be similar to those expected from the acquisition of Prime (and the share of Lloyd's), which was announced on the same day that these deals were made public. IHS plans to use both Dolphin and ESP to bolster its offerings in the energy, product lifecycle, security and environmental segments.

These companies should certainly enable IHS to hit the ground running since they have well-established product lines and customers. With the strength of IHS's resources, these product lines and customer bases will undoubtedly grow over time.

Area such as the environment and energy are such growing areas these days. In addition, social responsibility initiatives have increased in importance in the corporate business world. Many companies are now putting additional resources into such programs. IHS is definitely now well-positioned to capitalize on that trend.

IHS Expands Maritime Offerings Through Joint Venture

Global information provider IHS Inc. this week announced its acquisition of Prime Publications Inc., which owns 50 percent of Lloyd's Register-Fairplay Limited. The deal makes IHS an equal joint venture partner in Lloyd's, a global maritime information provider. IHS paid about $75.5 million for Prime Publications.

Lloyd's maritime information includes coverage of world merchant fleet (tankers, cargo, carrier and passenger ships) through a variety of products and services. It provides information about ships, companies, ports, real-time vessel movements, as well as research and consultancy services for the shipping industry.

In a statement announcing the deal, IHS notes that the maritime information market is of interest to customers in all four of its business segments: energy, product lifecycle, security and environment. The company also believes that Lloyd's offerings with complement those provided by Jane's Information Group, which focuses on the security segment.

Lloyd's also maintains extensive databases for the maritime industry. The company also publishes magazines that cover international shipping, safety, security and port-related activities. It also organizes conference, exhibitions and seminars.

Acquiring Prime Publications to gain access to Lloyd's is a solid move by IHS. This one acquisition will positively impact all facets of IHS's business, since Lloyd's content is relevant to many of IHS's current customers. The company won't have to do much with these new properties, at least not initially. The Lloyd's product line is already rather complete, with publications, databases, research and consultancy services, as well as events in its stable. But look for IHS to use its resources to maintain the stability of Lloyd's offerings and perhaps grow them over time as it markets them to current IHS customers who may not yet be familiar with these products.

Acquisition Poised to Bolster GCS's Presence in the Credit Scoring Marketplace

Investment banker Zenkel Schoenfeld LLC this week announced plans to acquire Global Credit Services (GCS), a boutique financial services firm and provider of Internet-based business credit information and credit risk management software.

Zenkel Schoenfeld expects the acquisition will help further its growth in the credit-scoring marketplace. The company anticipates the growth will be led by GCS's Premium Insight service, which provides credit ratings, as well as its new ARMZ credit scoring product (its latest version launched last November). The deal is expected to close next month.

Zenkel Schoenfeld partners Lester Schoenfeld and Dorothy Serdenis will take active roles in the new company. Schoenfeld will serve as chairman of the board, while Serdenis will become the chief operating officer. Gerry Delisle, GCS's co-founder, will remain with the company as chief executive officer.

This should be a worthwhile endeavor for all parties. Zenkel Schoenfeld will instantly increase its stature in the credit scoring space, while GCS will gain the capital it needs to grow in such a competitive marketplace. Look for both Premium Insight and ARMZ to become more robust offerings in this space as the newly combined company begins to build the foundation for a solid future.

Reed-Elsevier: Working the Workflow

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.

Labels: choicepoint, lexisnexis, reed-elsevier, seisent

Morningstar Launches Build on Winning Formula

Independent investment research provider Morningstar last week launched the Morningstar Rating for hedge funds, the Morningstar 1000 Hedge Fund Index and 17 indexes based on the Morningstar Hedge Fund Categories.

The new rating system for hedge funds is similar to the Morningstar Rating for mutual funds, according to the company. It uses a scale of one-to-five stars so similar numbers of hedge funds receive one and five stars. Morningstar categorizes the hedge funds into one of 17 Morningstar Categories, such as "convertible arbitrage" or "emerging market equity," according to a series of quantitative and qualitative measures. Morningstar then ranks and rates the hedge funds against peers in the Morningstar Categories based on risk-adjusted return.

Morningstar's database contains approximately 7,700 direct hedge funds and funds of hedge funds. There are 3,300 funds of hedge funds in the database.

The new Hedge Fund Index contains the top 90 percent of eligible assets in Morningstar's hedge fund database. The index is updated daily for the previous month-end, rebalanced monthly and reconstituted semi-annually. Morningstar also launched the 17 category indexes based on the company's strategy-specific classification system for hedge funds.

This is certainly a very logical next move for Morningstar. There is undoubtedly a strong need for such content; and the financial ratings giant already has a great model (the Morningstar Rating for mutual funds) to follow.

It's usually a good idea to take a winning formula and run with it. That's just what Morningstar did with this particular offering. Of course, it's necessary to do your research first in order to confirm there is enough customer interest to make a new offering viable. If Morningstar can identify other ways in which to build on this model, it probably will.