Thursday, February 21, 2008

Reed Elsevier to Buy Choicepoint, Sell Reed Business Information to Deepen Database Commitment

Reed Elsevier is doubtless looking over its shoulder at the Thomson/Reuters merger as of late and wondering how they can improve shareholder value in troubled times for traditional publishing against this looming B2B database giant already divested of print publications. Well, when the going gets tough, the tough buy databases would seem to be the answer to the wondering.

USD 3.6 billion later Reed finds itself lining up to be the proud owner of ChoicePoint, one the world's leading collectors of data on individuals used by businesses, governments and non-profits for a wide array of marketing, credit scores and background checking functions. Barron's notes that this deal has been in the works for about two years, but clearly the accelerating of scale by other B2B database providers has Reed eager to get some good news on the radar for shareholders. AP notes that ChoicePoint will be merged with Reed's LexisNexis risk business unit, with expected redundancies on tap as a result for LexisNexis employees.

The flip side of this deal is Reed's decision to let go of Reed Business Information, its B2B trade publishing unit that contributes about 20 percent of Reed's overall revenues today. With ChoicePoint's annual revenues a tad higher than RBI's and with considerably better growth prospects from ChoicePoint in the near term this an acquisition that fits in very well on the balance sheet. RBI's strong events production unit will be retained, though, as noted by Bloomberg News. With rapidly softening print ad revenues, a slowing business cycle and a very slow transition to online publishing and advertising as a mainstay, B2B media properties are not going to be the margin-producing machines they once were - a conclusion that Thomson had come to several years ago.

The deal offers Reed a number of great opportunities for revenue growth. With deeper personal profile data LexisNexis could develop more sophisticated analytics tools for the enterprise using data collected from other LexisNexis databases and also begin to widen the array of consumer-oriented information analytics that can help people to assess how the world views them as a risk. In a security-conscious world with lots riding on personal risks the value of these services certainly makes for a good investment. But there's a lot of unexplored territory around the potential for this kind of personal data to drive new types of electronic marketing. Generating marketing lists from a database is one thing: being able to match up online profile data to ChoicePoint profile data could give marketers a far more precise view of who they should be trying to reach online via ads and other marketing services.

This last point is key to the decision to drop the RBI division at this time and to hang on to the events properties. It used to be that magazines drove events: these days it's far more the case that events drive magazines, with the relationships formed in face-to-face events becoming far more important marketing vehicles than ads placed next to editorial content which is increasingly being replicated in a multitude of online content outlets. Overall it's probably better for Reed to focus on high-value human interchanges for B2B marketing and to focus its advertising efforts on helping marketers via personal metadata found in ChoicePoint and other databases to target the right people through any number of online and offline marketing channels.

Most all of this is good news for Reed Elsevier in the short run and even quite good for the long run for shareholders looking for steady returns. With the rise of online publishing one needs to accept that the huge influx of investment into new publishing technologies and business models makes it increasingly untenable to maintain the illusion that you can provide steady cash-cow returns in a sector that has reinvented itself around the long-term payoffs to be gained from risky startups. Apparently unwilling to risk margins on traditional editorial models in this environment and having missed most of the choice opportunities to move aggressively into online publishing Reed is probably best off punting its print-centric properties to those better suited for turning aging cash cows into hamburger.

If there's a potential sticking point in all of these moves it's that Reed Elsevier is moving one very control-oriented database culture into the arms of another control-oriented database culture. That bodes very well for the LexisNexis family of databases itself but not necessarily well for a division which in some ways was having trouble looking beyond traditional I.T. infrastructure and search applications into the markets' broader needs. Many changes have been undertaken already in LexisNexis to deliver more responsive product development but perhaps one of the more interesting aspects of this merger to watch is how ChoicePoint's dual focus on enterprise and consumer database services might influence LexisNexis product development. With more sensitivity to how individuals interact with databases in a public Web environment there may be some interesting product insights working their way into the LexisNexis fold as well.
Post a Comment