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Amid increasing interest from tech investors in B2B information services, Xhulio Ismalaj explores the subsector
Two decades ago, most trade publications offered their subscribers a mainly physical product on paper. Fast-forward to 2024 and the majority of B2B publishers have become digitally native.
Many have even gone beyond that in the last decade, broadening their products to include fully searchable databases. With that, ‘B2B information services’ has entered the vernacular.
Businesses within the subsector tend to be niche, targeting specific end markets – a characteristic favoured by private equity, which is focused on being specialist, says Ian Wood, partner at Epiris, which in November 2022 acquired Euromoney Institutional Investor, a business and financial information company now called Delinian.
With working from home, people are actually prioritising events, because it gives them face-to-face contact
“Our focus is to take Delinian from a monolithic group into 16 specialist, high-quality brands with their own MDs because, for example, what the insurance market needs is not necessarily what the economic research market needs,” he says.
While generalists would likely not have heard of these niche brands, they hold valuable information for users in their end markets. The moat around these brands’ data makes it hard for competitors to disrupt them and costly for customers to sever ties.
“A number of Delinian’s products are now embedded in people’s workflows in SAP or Salesforce, for example,” says Wood. “So, if you switch them off, they would suddenly realise, as they try to look up who's the right person to speak to on their CRM, that there's a whole load of information they didn't know they paid for. It looked like it was from Salesforce, but it was actually going in behind the scenes from one of these information services businesses.”
Of course, GPs love the downside protection from these resilient business models. But Wood notes that price can be driven by investing in product innovation, which presents potential for a higher return. Further to that holy grail are the Ebitda margins of approximately 30-50% found in B2B information services businesses, as the Epiris partner highlights: “50% will be the very best, but 30% is pretty typical, which is still high compared to most businesses.”
The appetite is particularly strong for businesses that can demonstrate the journey from print to digital, into becoming more of an events and data business
With recurring revenues and sticky customers intrinsic to this subsector, software investors have, naturally, been poking around. However, Liam McGivern, managing director of ICG’s European midmarket private equity team, cautions against investors dipping into this market due to a scarcity of quality software assets.
“With a lot of the business models in B2B info services and publishing, if you come at it with a pure-play mindset of, ‘I just want subscription revenues’, as many software investors do, then you can actually limit the value proposition for your customer,” he says. “You may have to offer other services, which might drive you to a more mixed model.”
Those same recurring revenues and sticky customers can also lead businesses in this space to become complacent, making the need to listen to customers and innovate that bit more crucial.
For example, around the time of ICG first backing With Intelligence in early 2020, the portfolio company was a collection of different businesses providing data across separate classes of asset management. Realising that the same investor relations user might be researching, say, hedge funds one day, real estate another, and private equity the next, With Intelligence integrated its verticals onto one common platform, thereby making the interface and datasets more comparable.
As well as fighting complacency, B2B information services businesses are fighting inflation and high interest rates like all sectors. Against that backdrop, leaders within an end market will see spending on them maintained, unlike the third- or fourth-ranked providers, which are likely to be impacted by their customers’ budget constraints.
Last September, Alfred Chambers, principal at Coniston Capital, led the small-cap firm’s investment into Finlayson Media Communications (FMC), a UK dental media company. “The business is number one in its field,” he says. “I'm sure some of its competitors will feel the pinch more than they do.”
Being “number one” across print, digital and events in its niche means the business is less cyclical and more stable, says Chambers, stressing that FMC has traded well through challenging periods during the past few years. He emphasises, though, that mileage may vary depending on the end market.
“Dentistry itself is pretty resilient,” he remarks. “Yes, in times of downturn, people will spend a bit less on cosmetics and they might delay some surgeries, but generally it's not a market that's going to decline by 30% in a year. The market is also of a reasonable size. It's an £8bn industry in the UK, operated by 120,000 professionals and 12,000 practices. And it's lucrative – we all know how much it costs to go to the dentist.”
On the belt-tightening sacrifices, McGivern notes that broader providers will fare better: “If you're a point solution in one part of an organisation where what you provide could be provided not as well but close, then that puts you at risk. Whereas if you're across five or six different parts of an organisation, I think that gives you much more resilience.”
Nonetheless, amid customers cutting budgets, there are those looking to spend on information services to find new business. One complimentary revenue stream – an innovation for some, even – that provides customers with unique, actionable insights, comes from face-to-face events.
“Over the cycle, in times of a normal recession – if you ignore Covid – people will tend to do less travel and they will tend to go to fewer events when budgets are constrained,” says Epiris’ Wood. “What we're seeing offsetting that is, with working from home, people are actually prioritising events, because it gives them face-to-face contact. Some events have become much bigger, gathering more industry executives, and you can meet 100-plus people in a week, which is very cost- and time-efficient.”
Despite the tough economic times, these businesses can charge more for providing actionable information, whether that be through experiences shared on a panel or transaction gossip between attendees. McGivern warns, though, against pricing up first and innovating later.
“You can push prices quite hard. It doesn't mean you'll see much churn but, ultimately, you want your customers to like you,” says the managing director. “The challenge is finding a balance where you're creating enough upside, profit and return to reinvest, but you're also reinvesting in a way where customers see the improvement in the product coming through quickly enough.”
After investing to bring With Intelligence’s brands into one common platform during its first investment cycle – a project that finished in early 2023 – McGivern’s firm remained a shareholder following Motive Partners’ acquisition of a majority stake in the business last summer, so that ICG could reap the portfolio company’s eventual uplift in earnings from the re-platforming.
In the smaller end of the subsector, how Coniston-backed FMC will adequately monetise its database of UK dental professionals is not yet fully known. Chambers acknowledges that deriving value from data will create a more desirable business, but the transformation may require new expertise.
There are some trade buyers and consolidators in B2B media – not as many as in other sectors but enough for us to know that there'll be a buyer
“FMC’s managed the transition from print to digital, it’s growing in the attractive events and subscriptions spaces, and it has the potential to make the last step, which is into business information and data. That's something that we hope to start but it might be the piece for the next investor to really leverage the database,” he says.
“What we are looking for is consolidation above that platform to be confident that there's an exit route. There are some trade buyers and consolidators in B2B media – not as many as in other sectors but enough for us to know that there'll be a buyer for this business.”
From PE, the appetite is particularly strong for businesses that can demonstrate the journey from print to digital, into becoming more of an events and data business, says Coniston’s principal. If it can be a platform to bolt on other businesses, even better.
ICG’s McGivern supports that smaller businesses with more of a print legacy, like FMC, are typically going to be targets for consolidation. ICG’s first six bolt-ons for With Intelligence were of mostly smaller, largely digitalised businesses that had not completed the enrichment of their data collection.
Such consolidation trends will only make these bigger platforms even stickier.
