The US-based $26bn Verisk analytics group (through its energy data subsidiary Wood Mackenzie) has bought energy data group Genscape from the UK listed Daily Mail and General Trust (DGMT). The cash price was $364m: 4 x 2018 revenue or 38 x $9m EBITDA. DMGT had itself acquired Genscape in 2006 for $130m.
Its the latest divestment by the family-controlled, cashed-up DMGT in the name of a strategic ‘re-focus’. In practice, the company has a long tradition of investing the profits of its legacy newspaper media in well-choosen B2B assets, and then generating a substantial share of cashflow from regular divestments. It raised some £1.2bn from asset sales during 2017 and 2018 including Euromoney and Zoopla.
The challenge for the famous British newspaper publisher is highlighted by the steady decline of its still formidable Daily Mail news media (now 45% of revenue but 30% of EBITDA). Arguably, the company needs to regard its B2B events and information services (which have long generated a majority of DMGT profits) more as core assets than as components in a private equity portfolio to be churned and changed regularly. Having been outbid for exhibition companies in recent months, the suspicion must be that DMGT’s financial strategy acts as a constraint on M&A in a market where B2B multiples can make it more attractive to sell than buy.
The topic must have been in the minds (if not on the tongues) of Verisk executives negotiating recently with DMGT – because they compete directly.
Most of the world’s largest insurers use one or both of the catastrophe modelling services operated by Verisk and DMGT.
The UK company acquired its California-based Risk Management Solutions (RMS) after it was spun-out from Stanford University in 1998. The £130m total price was a steal for a pioneering business that has often generated operating profit of more than £50m during the past 20 years. But there had been criticism of the way that RMS’ essential software upgrades often ran late and over budget. A change of leadership (and the abrupt exit of the RMS founder) in 2018 seems to have steadied the business which made £35m profit last year. But the sector is more competitive than ever.
Nobody will have missed the point that, even if RMS does not justify a profit multiple approaching Verisk’s p/e of 45, DMGT’s risk modelling business (which accounts for some 16% of total revenue) should be worth more than 50% of the parent company’s £1.9bn market cap. How tempting is that for DMGT?