UBM’s merger talks with Informa may yet smoke other bidders out, but the deal puts David Levin in sight of realising his ambitions for the firm. By Sarah Arnott
David Levin, the chief executive of United Business Media (UBM), is negotiating by far the biggest deal of his three-year tenure as he strives towards the goal of turning the company from a sprawling mish-mash of trade newspapers, market research and broadcast interests into a focused business information empire.
The proposed all-share nil-premium merger between UBM and Informa, another business-to-business (B2B) giant, received an enthusiastic response in the City yesterday. Although both companies were at pains to stress the merger talks were at an early stage, UBM’s shares went up 2.1 per cent to 618p, and Informa’s hit a five-month high, up 13.3 per cent at 437.5p.
Since taking over in early 2005, Mr Levin has presided over nothing short of a reinvention of the company. Anything deemed not to fit into the B2B model has been sold. Exchange & Mart, the consumer bible, went to the US-owned group Newsquest for £50m. The 35 per cent stake in the TV channel Five went to RTL, the broadcaster’s joint owner, for £247m. NOP, the market research unit, went to GfK for £383m.
Full-year results for 2007, published in February, show more than £800m returned to shareholders over the three years, but the strategy is not just about selling. Trade publishing is no longer just about magazines, but a package of information services including journals, exhibitions, conferences and websites. With that in mind, UBM has been on a massive spending spree, adding 52 companies to the group’s portfolio at a cost of £386m.
The strategy has found favour with shareholders and the City alike. In 2007, revenues grew 8.5 per cent to £802m and pre-tax profits by 14 per cent to £129m. Since 2005, earnings per share has shot up by 80 per cent. UBM is a different company, as Mr Levin himself pointed out earlier this year. “People still think of us as a British magazine company but the UK now represents only 15 per cent of our profit and 23.4 per cent of revenue,” he said. “News distribution, data and events businesses represent 80 per cent of operating profit.”
Mr Levin is not alone in his decision to build a company offering more diverse services within a narrow field. While the big players may not all have chosen the same destination, all have identified a similar path. Reed Elsevier, pursuing stability, is focusing on its scientific and legal assets because, being electronic and subscription-based, they are seen as more resilient and less exposed to the problems of cyclical advertising spending. The group has already sold off its Harcourt education arm, to Pearson, and has its B2B group up for sale – although the decision to hang on to the more lucrative exhibition business may put off any potential buyers (indeed Mr Levin has dismissed the idea of a UBM bid).
Similarly, Thomson sold off its education business to focus on financial news, hence the merger with Reuters. Pearson picked up Harcourt to consolidate its market-leading position in education publishing. Emap is the most salutary lesson of all. Widely viewed as having lost its way, the 120-year old firm was broken up last year – its B2B arm snapped up for £1.2bn by Guardian Media Group and Apax, its consumer and radio assets bought by H Bauer, the German publisher, for £1.14bn.
The proposed tie-up between UBM and Informa is entirely in keeping with Mr Levin’s B2B focus. Informa is the world’s largest publicly owned conference organisation and has a publishing portfolio including the famous Lloyds List. The potential synergies between the two groups are considerable and the overlap is limited, obviating competition issues.
“The resulting business is not absolutely compelling but the two parts do have complementary portfolios and it looks like a sensible deal,” said Paul Richards, a media analyst at Numis.
Where the proposal is different from UBM’s 52 other deals is in its scale. Not only would it be by far the biggest deal in Mr Levin’s time, but it would also catapult the combined group into the FTSE 100 and precipitate a possible re-rating of the group’s shares. If the deal goes ahead, the combined group is expected to be run by Mr Levin, with Peter Rigby, the Informa chief executive, tipped to become chairman. “David Levin has sold off businesses, reshaped the portfolio and turned down some that would have made the group much larger so this proposal is unequivocally not an ego trip,” said Mr Richards.
A more persuasive explanation of the proposal is that it is a question of timing. With a market cap of around £1.6bn, Informa is actually the larger of the two, compared with UBM’s £1.5bn value. But a series of acquisitions – not least the £502m purchase of Datamonitor, the market intelligence group, last May – have left investors wary of Informa’s debts and the share price has been on the slide.
Despite a recent rally on the back of rumours of private equity interest, the stock is still down by a third from 12 months ago, compared with a 25 per cent drop in the media sector as a whole. Particularly in comparison with Emap’s B2B valuation of 12 times its earnings when it was sold before Christmas, Informa’s stock at eight or nine times earnings looks financially attractive.
The danger is that the low price attracts other suitors. “There are other businesses out there to whom Informa would be attractive so we could definitely see a rival offer come through in the coming weeks,” said Mr Richards. “Springer already bid for it once, 18 months ago, and Apax already owns both Incisive and Emap’s B2B business, which is now run by David Gilbertson, who used to run Informa.”
But it is not just price. Diversifying away from purely print media may insulate the business from some elements of an economic downturn, but subscription services, exhibitions and conferences will also suffer from a global economic downturn, if over a slightly longer time period.
“With exposure to financial services, retail, building and so on … there will inevitably be some impact on these companies, it just takes time to come through,” said one City analyst. “We expect the next two years to be much more difficult than the past two, so they are eager to get something done at this point, to diversify, scale up, make the most of cost synergies and so on. Going through a full merger in a time of economic weakness is also a good way of distracting the market, so there are all sorts of reasons to do this now.”
From business publishing to international beauty
*A publishing company is no longer only a publishing company. With everything from freshwater pearl auctions on the other side of three security checks, to aisles and aisles of the most disposable of costume jewellery, trade fairs, exhibitions and conferences in ballooning Asian markets, United Business Media(UBM) has several key growth areas.
The group runs events across the Far East – including China, Macau, Hong Kong and India. In keeping with the chief executive David Levin’s strategy to focus on the business-to-business market, but with as many different types of product as possible, UBM is building up its portfolio of shows and exhibitions, particularly in emerging economies, and developing new ways to deliver trade information beyond the humble newspaper.
Part of the plan is to export franchises that work. The International Fire and Security Show in London – long-established as the world’s largest of its type – was also run in India for the first time last year. The scale of the Far Eastern market is staggering.
Take the International Beauty Fair, in Guangzhou, China, which the group bought last year for £1.8m. The show routinely attracts more than 200,000 people to its four-day event, and is expected to pull in even more this year.
A recent addition is the creation of an online site to run in conjunction with the fair. Not only do exhibitors have a space to show off their wares all year round, but UBM provides additional information services – such as real-time data on the price of gold, along with analyst forecasts and commentary.
The beauty of the deal for UBM with Peter Rigby’s Informa is that its proposed partner offers exposure to another set of potentially lucrative markets for the exhibitions business – the Middle East – where the same model could be applied.
Source: independent.co.uk
