Blackstone Group LP is set to enter into the already crowded, and continuously changing, financial data market with its largest acquisition bid since the financial crisis.
A consortium led by the private equity giant has agreed to acquire a 55% stake in Thomson Reuters Corp.'s financial and risk business in exchange for cash, debt and preferred equity totaling $17 billion. With its bid, Blackstone will take on the task of turning around the company's financial data business, which has been plagued by pressure from competitors who have managed to snatch market share away from the company.
"It's going to be a challenge," Piper Jaffray analyst Peter Appert said in an interview. "It's not clear to me what the formula is to really move the needle on growth."
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Thomson Reuters is one of two "800-pound gorillas" in the market, alongside its chief rival Bloomberg LP, Appert said. But other competitors in the business like S&P Global Inc. and FactSet Research Systems Inc. have managed to steal away market share from the company as well.
Revenues from Thomson Reuters' financial and risk division fell 10.9% from 2012 to 2016, according to S&P Capital IQ data.
In that same period, Bloomberg's revenues in its data business climbed 21.4%, and FactSet's revenues spiked 139.3%, according to data from Burton-Taylor International Consulting, a TP ICAP Plc company.
S&P Global's Market Intelligence business, formed after the acquisition of SNL Financial, grew revenues 8.79% from 2015 to 2016.
Thomson Reuters' deal with the Blackstone-led group, which also includes Canada Pension Plan Investment Board and GIC, allows Thomson Reuters to capitalize on high valuations while also retaining a portion of the business, President and CEO Jim Smith said Jan. 30 during a conference call to discuss the deal. Smith added that the bid could also "significantly de-risk [the company's] exposure to the financial services industry."
Thomson Reuters' interest in partially exiting the business line likely came as the company realized its performance in the space "has been poor" amid a challenging market environment, Piper Jaffray's Appert said.
In the same move, the company also agreed to supply the group with Thomson Reuters' news content in return for an annual minimum payment of $325 million.
The news contract was likely spurred by the 2007 agreement that formed the company, Appert said. The news division would likely have been included in Blackstone's bid if it had not been for a requirement for the news division to retain independence, he added. One of the Reuters Trust Principles, which does not permit the news operation to pass into the hands of any one group, was waived for the merger that created Thomson Reuters in 2007, but only on condition the Thomson family remained in control.
One of Thomson Reuters' trust principles states that it cannot be owned by a particular interest or group.
If the bid is approved, Blackstone may look to immediately turn around the business by minimizing its overhead charges, potentially by integrating it with other platforms or streamlining its operations and information technology, Goldman Sachs analyst George Tong wrote in a Jan. 31 research report.
The company may also look to grow the business through "uniquely compelling products" for its customers, Blackstone Senior Managing Director Martin Brand said in a statement.
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But Blackstone's entrance into the financial data business also comes as industry experts anticipate a changing tide in the market.
The rise of "alternative data," or nontraditional data sets that help industry participants make investing and trading decisions, could create a turning point for financial data providers, Aite Group analyst Spencer Mindlin said in an interview. Operations like Thomson Reuters' financial and risk business have not broadly adopted such information yet, he said.
The migration toward alternative data could present opportunities for Blackstone to turn around the financial and risk business, Morgan Stanley analyst Michael Cyprys wrote in a Jan. 31 research report.
Under Blackstone's guidance, the financial and risk business could venture into alternative data, web scraping and other forms of industry-focused data sets that could facilitate new customer growth and growth among existing clients, Cyprys wrote in the note.
"An arms race is underway for new and proprietary data feeds that could give investors an edge," he wrote. "Growing use of big data and machine learning will make data more valuable, particularly proprietary data."


