DataExplorers and Why Financial Information Vendors Fear a Storm

December 4, 2011

I am still amused that my team predicted the management shift at Thomson Reuters weeks before the news broke. Alas, that 250 page analysis of the Thomson Reuters’ $13 billion a year operation is not public. Shame. However, one can get a sense of the weakening timbers in the publishing and information frigate in the Telegraph’s story “DataExplorers Looks for £300m Buyer.”

DataExplorers is a specialist research company. The firm gathers information about the alleged lending of thousands of institutional funds. I am not familiar with the names of these exotic financial beasties. The aggregated data are subjected to the normal razzle dazzle of the aggregation for big money crowd. The data are collected, normalized, and analyzed. The idea is that an MBA looking to snag an island can use the information to make a better deal. Not surprisingly, the market for these types of information is small, only a fraction of those in the financial services industry focus on this sector.

DataExplorer’s revenues reflect this concentration. According to the write up, the company generated less than £15 million in annual revenues in 2010 with a profit of about £3 million. The margin illustrates what can be accomplished with a niche market, tight cost controls, and managers from outfits like Thomson Reuters. That troubled outfit contributed the management team at DataExplorers.

Now here’s the hook?

The company is for sale, according to the Telegraph which is a “real” journalistic outfit, for £300 million. That works out to a number that makes sense in the wild and crazy world of financial information; that is, 100 times earnings or 20 times revenue. The flaw, which I probably should not peg to just Thomson Reuters, has these facets:

The global financial “challenge” means that there may be some pruning of information services in the financial world. Stated another way, MBAs will be fired and their employers may buy less of expensive services such as DataExplorers
If the financial crisis widens, the appeal of “short” information may lose a bit of its shine. Once a market tanks, what’s the incentive for those brutalized by the sectors’ collapse to stick around
Thomson Reuters is pretty good at cost cutting. Innovating is not part of the usual package. This means that DataExplorers may be at the peak of its form and sea worthy for a one day cruise in good weather, and once a deal goes down, the new owners may have a tough time growing the business because marketing and research will require infusions of capital to keep the vessel from listing.

Net net: DataExplorers is an example of an information property which may be tough to get back into growth mode. The buyer will be confident that it knows how to squeeze more performance from a niche information product. And that assumption is what contributes to the woes of Thomson Reuters, Reed Elsevier, and many other high end professional content producers. Optimism is a great quality. Realism is too.

Stephen E Arnold, December 4, 2011

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Stephen E. Arnold monitors search, content processing, text mining and related topics from his high-tech nerve center in rural Kentucky. He tries to winnow the goose feathers from the giblets. He works with colleagues worldwide to make this Web log useful to those who want to go "beyond search". Contact him at sa [at] arnoldit.com. His Web site with additional information about search is arnoldit.com.