Monday, November 26, 2007
The recent articles highlighting the anti-trust scrutiny by the EU of the pending merger of Thomson and Reuters have uncovered tremendous opportunities for growth and change in the investment research technology space. Here is some sub-text worth watching as the merger unfolds:
- Putting the bullseye on Bloomberg: From the beginning, it has been apparent that TF-Reuters were coming together to target Bloomberg’s desktop market share. The main speculation has been focused on how Bloomberg will react to a pending attack on its core business, but an under reported aspect of the story is that many opportunities will be created for the smaller niche players in the market. While the big players are preoccupied with one another, hungry nimble companies in the space could seize the opportunity and gain traction in their core areas of expertise. Firms that can deliver interesting and innovative solutions, especially in those areas of weakness by either the new TF-Reuters offering or Bloomberg, could easily make waves.
- A ramp up by platforms in the “second tier”: Similar to the very small niche players, “second tier” platforms like Capital IQ, FactSet and Factiva could capitalize on the channel noise above them to gain market share with material expansions of their offerings. The pending Dow Jones–News Corp merger makes the Factiva story especially compelling, as it is unclear about the direction Rupert Murdoch intends to take that service despite the tremendous amount of content under the News Corp umbrella. More so than at any time in recent history, this tier of services appears to have a real opportunity to expand their reach.
- Anticipated divesting by TF-Reuters to comply with anti-trust concerns: One of the most obvious questions that arose after the announcement was regarding how the merged entity was going to manage the duplication of services between Thomson and Reuters (news desks, earnings estimates, trading platforms, etc.). As the two firms look to comply with anti-trust regulations both here and abroad, divesting of duplicative or non-core entities is increasingly likely (as Thomson recently has done with its TradeWeb platform). Because both Thomson and Reuters have such large, established footprints in the investment research technology space, sales or spinoffs of select business units could significantly alter the competitive landscape.
- Additional consolidation in the industry: There is a distinct possibility that all of the activity mentioned above could also lead to the large players (likely suspects are Bloomberg, DJ-News Corp, S&P, TF-Reuters, and Xinhua Finance going on a “land grab” -- buying the best of remaining firms available in the marketplace as a way to become the most robust platforms available. It is also feasible that new major players could enter the scene via merger of smaller firms. In the end, it wouldn’t take much, maybe one or two transactions, to start a domino effect across the industry.
Of course, all of the conjecture above is going to largely depend on the economy and the health of the institutional investment industry as a whole. Regulatory, economic, and geo-political factors could all play a part in how Thomson, Reuters, Bloomberg, and the rest of the industry adapts to the pending changes. Nonetheless, it is safe to say that the upcoming Thomson-Reuters merger brings with it a pivotal era in the investment research technology industry. Stay tuned!
Guest author: David Frankel, VP Business Development FirstRain