By Eduardo Marziale, Patrick Rogerson and Edoardo Cogliati
On October 3rd 2016, Onex Corporation (“Onex”), one of the oldest and most successful private equity firms founded in Toronto, CA, and Baring Private Equity Asia (“Baring Asia”), a well-established independent and alternative asset management firm in Asia, concluded the two months’ negation for the acquisition of the Intellectual Property and Science division of Thomson Reuters, the world’s leading source of news and information for professional markets.
Since November 2015, the time when Thomson Reuters announced its willingness to sell its IP&S division, different bidders have approached the multinational information provider, among which Bain Capital, BC Partners, Informa Plc and Carlyle Group LP. To obtain this highly demanded deal, Onex and Baring Asia have had to disburse $3.55 billion all in cash, of which $1.2 billion came from an equity investment, majorly financed by Onex’s flagship fund, while the remaining amount derived from the issuance of a $2 billion debt.
The acquired division, headquartered in Philadelphia and employing 4100 people in 75 offices distributed through 40 countries, becomes Clarivate Analytics, a newly independent company. The latter, will continue to focus on the fields in which it excelled, hence owning and operating a collection of leading subscription based businesses, focused on scientific and academic research patent analytics and regulatory standards, pharmaceutical and biotech intelligence, trademark and domain brand protection, and intellectual property management. Thomson Reuters, financially advised by Guggenheim securities and JP Morgan securities Chase & Co, will use the divestiture as a way to buy back shares, pay down debt and reinvest in the business.
The transaction sees on the seller’s side Thomson Reuters, a multinational mass media and information firm headquartered in Times Square and founded in Toronto, Canada, whose shares are listed on the Toronto and New York Stock Exchanges (TRI). Thomson Reuters, born on 17 April 2008, after Thomson Corporation acquired the British-based Reuters Group, is majorly owned by the Woodbridge Company. It has built up its reputation by delivering customers with intelligence, technology and expertise they need to find trusted answers. The firm operates in more than 100 countries and employs more than 60,000 people around the world. Through the years it succeeded in becoming a direct competitor of Bloomberg LP, parent company of Bloomberg News, in the provision of news and information. Under the leadership of James Smith, president and CEO, the company has generated a revenue of $12.61 billion in the year 2014 and a profit of $1.91 billion in the same year.
On the buyer’s side, instead, the two funds that won the deal are Onex and Baring Asia. The former, headquartered and listed on the Toronto Stock Exchange (OCX), through its Partners and ONCAP private equity funds, acquires and builds high-quality businesses in partnership with talented management teams. With offices in Toronto, New York, New Jersey and London, the company manages $36 billion in assets including $6 billion in proprietary capital, private equity and credit securities. It generates annual revenues of $23 billion, investing in leverage loans, collateralized loan obligations and other credit securities, and has approximately 145,000 employees worldwide.
The latter, with offices in Hong Kong, China, India, Japan and Singapore, was born in 1997 and manages total investments and committed capital of over $10 billion. With just over 140 employees the company runs a pan-Asian investment program sponsoring buyouts and providing growth capital to companies for expansion or acquisitions, as well as a private credit and a pan-Asian real estate private equity investment program, currently owing 35 portfolio companies active across the Asian continent with a total of 150,000 employees generating revenues of $31 billion in 2015, under the management of the CEO and funding partner Jean Eric Salata.
The decision to sell its IP&S division could be interpreted as a way to overcome the economic difficulties arisen from the financial crisis of 2007, which weakened the performances of Thomson Reuters to this very day. A confirmation of such intuition can be identified in the declaration of intent to use about $1 billion of the net proceeds of the sale to buy back shares and the balance to pay down debt, primary consequence of the issuance of commercial papers, and to reinvest in the business. Indeed, such shares buybacks will be part of the previously announced $1.5 billion share buyback plan.
The portfolio of the IP&S includes many well‐known brands such as Web of Science™, Cortellis™, Thomson Innovation™, Derwent World Patents Index™, Thomson CompuMark™, MarkMonitor®, Thomson IP Manager™ and Techstreet™, among others. The Intellectual Property & Science business provides comprehensive intellectual property and scientific information, decision support tools and services that enable the lifecycle of innovation for governments, academia, publishers and corporations to discover, protect and commercialize new ideas and brands.
Another incentive for selling the business is the parent company’s willingness to focus its attention on the core operations, as stated by Thomson Reuters’ CEO, who declared “With the completion of this divestiture, Thomson Reuters will be even more focused on operating at the intersection of global commerce and regulation”.
On the other hand, what pushed Onex to acquire the division is the high-quality diversified portfolio it has to offer, which includes well-positioned businesses that provide proprietary and curated contents, through products and services, to its day-to-day customers, as declared by the Onex managing director, who also added that this will be an opportunity to partner with Baring Asia, thus expanding its investment scope in the Asian market.
Regarding Baring Asia’s motivations, the most relevant is the fact that they see the new-co Clarivate to further expand their business in the Asian market, main target of the PE House and, furthermore, main geographic area of expertise.
After the sale, the IP&S division becomes a newly independent company named Clarivate Analytics, which will accelerate the pace of innovation with the trusted insights and analytics provided to customers, enabling users around the world to discover, protect and commercialize their ideas as Vin Caraher, Clarivate CEO, affirmed.
The sale was subject to regulatory approval and customary closing conditions, including the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act, and as expected it was not subject to any financing conditions, since both acquiring companies had obtained debt and equity commitments for the transaction.
Finally, a proof of the positivity and appreciation of the transaction is given by the increases in the share prices of both Thomson Reuters and Onex, which immediately after the announcement in July rose respectively of $1.13 closing at $54.40 and $0.52 closing at $80.