Reed Elsevier snaps up US data provider

Reed Elsevier’s agreement to buy US group Accuity Holdings for £343m in cash, announced on Monday, marked the first big deal of its chief executive Erik Engstrom’s 22-month tenure.

Illinois-based Accuity, which provides online subscription-based services for financial institutions, was sold by Investcorp, the Bahrain-listed investment group.

The Anglo-Dutch publishing group said the acquisition of Accuity, which provides data in credit risk, regulatory compliance and online payment systems, would complement its UK Bankers’ Almanac business and the financial services arm of its LexisNexis Risk Solutions division.

Reed Elsevier declined to disclose financial details of the acquisition, but people familiar with the deal said that the multiple of enterprise value to earnings before interest, tax and amortisation was in the “low-to-mid teens”.

Barclays Capital estimates Accuity will earn about £30m ebitda this year, implying 11 to12 times underlying earnings which the investment bank said was in line with recent valuations in the sector.

Investcorp paid $350m in cash for Thomson Media – now known as Source Media – in 2004. Accuity was created as an online division within Source Media, which produces printed titles such as American Banker and Accounting Today for the banking and financial services markets, in 2005.

The deal is the largest to date by Mr Engstrom, Reed Elsevier’s chief executive since November 2009.

Reed Elsevier said Accuity, which will be part of its Reed Business Information division, had “95 per cent-plus customer retention rates and double-digit revenue growth”. The transaction is expected to pay for itself within three years.

Accuity, with 300 staff spread over offices in the US and the UK, serves more than 14,000 clients, including the largest 25 US banks.

In July, Reed Elsevier said it was on course to increase profits this year, in spite of a slide in first-half revenue caused by the shedding of underperforming trade magazines and deferred software spending by insurance companies.

Reed Elsevier shares, down 9 per cent in the last year, closed up 5.8p, or 1.2 per cent, to 492.4p.

FT Comment: Investors have been waiting impatiently for Erik Engstrom’s big vision, but this is not it. Perhaps the big vision is destined to be a series of smaller steps, tidying up existing divisions of Reed. Accuity is certainly a logical addition to the RBI portfolio, once seen as Reed’s weakest point. A price of about 13 to 14 times ebita is bold, but not to the point of rashness, which was the longtime worry investors had over Reed’s M&A strategy. It is about time the group got to a mutliple of 15 times the forecast earnings for next year – a level shareholders were once used to – from the current 10 times, and this is a small step in the right direction.