Interactive Data Corp.
(IDC), a global provider of financial and business information, has caught the eyes of private equity firms Warburg Pincus and Silver Lake Partners, who have more or less agreed to take over the financial information company for an estimated value of more than $3 billion.
The Financial Times has reported that this is going to be one of the largest Private Equity deals since the beginning of the credit crisis three years back. Other big private equity players also participated in the bidding process, but exited early, as the bid price shot up to levels that would make it difficult for them to fetch a desired return on investment.
IDC’s largest division, Pricing and Reference Data, serves more than 4,000 institutional customers. Revenue from the segment grew by 5% in fiscal 2009 from the 2008 levels, in a challenging market environment, given the desire to cut costs by asset managers. The company’s pricing and independent division evaluates over 2.8 million fixed income securities, while its reference data evaluates over 6 million securities globally.
IDC maintains very strong renewal rates, typically around the 95% range. The company has further strengthened this business with its recently acquired 80% majority interest in NTT DATA Financial Corporation (NDF), a leading provider of securities pricing, reference data and related services to most of the major financial institutions in Japan.
The private equity firms have been sitting on cash for quite some time, as in the past three years the credit environment was not conducive for investment. While these private equity firms have got an opportunity to invest in a business which is expected to pick up in the near future, the flipside is that it may prove to be a difficult business decision as Interactive Data faces tough competition from companies such as Bloomberg L.P., Dow Jones & Company Inc. and Thompson Reuters (TRI), which have significantly greater financial, technical and marketing resources compared to IDC.
These competitors may be able to expand their offerings and data content more effectively, price their products more aggressively or respond more rapidly to situations developing in the marketplace. Interactive Data has to innovate and offer new products and solutions at regular intervals to be at par with these big names.
Pearson, the owner of the business daily Financial Times, also owns a 60% stake in IDC. This sale is expected to give Pearson substantial resources, which the company is planning to use for financing its acquisitions, mostly in the educational business space. This would help Pearson, diversify into the education vertical, which is relatively recession proof and would therefore increase the stability to its business model.
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