The UK’s DMGT has agreed a $2.02 billion cash deal to sell its US-based catastrophe forecasting and insurance risk business RMS to Moody’s. The price is some 40 times 2020 operating profit and 8 times revenue.
DMGT controlling shareholder Lord Rothermere (who controls 36% of the equity but 100% of the voting shares through a Bermuda-registered company) last month set out proposals to take the Daily Mail publisher private, contingent on the sale of RMS and completion of the US flotation of online car seller Cazoo, in which DMGT has a stake valued at more than $1 billion.
The divestment is a landmark for DMGT in more ways than one.
It is 10 years since B2B media (temporarily) eclipsed newspapers as DMGT’s principal profit-maker. The 1998 acquisition of the pioneering RMS had been the game changer. Within a few years, it had become DMGT’s most successful wholly-owned business, with operating profit of £57m in 2013. But it has suffered through strong competition (including from a non-profit industry provider), careless trumpeting of its own high profit margins, and by repeatedly failing to deliver new software on time and on budget.
As STM publishers have painfully discovered, excessive profit margins tend to encourage the rival development of open-source systems, inevitably leading to lower margins. And so it is with catastrophe modelling. DMGT had acquired RMS (formerly Risk Management Solutions) after it was spun-out from Stanford University. The £130m total price that DMGT paid for the pioneering business was a steal. But, in recent years, the profits have been flat-lining.
This year’s £34m is fully one-third of DMGT operating profit but is down on a 2019 RMS performance which had been trumpeted as a recovery after the unexplained departure of the company’s founder.
In the event, RMS has been another investment – and divestment – triumph from the listed (mainly news) company which just keeps on winning.
DMGT may find it easier to be private and investors will be able to stop worrying about its longterm strategy beyond the news business. But those same investors will miss the dependable dividend growth (a 30-year CAGR of 8%) which has been largely funded – in good years and bad – by the sometimes risky investment portfolio. But DMGT’s unshackled future could mean exciting times for the media industry.
