With Michael Bloomberg throwing his hat into the ring for the 2020 Democratic nomination, many have speculated as to how Bloomberg would divest his equity stake in his namesake firm were he to win the Presidency. We don’t expect Mr. Bloomberg to win the Office of the President nor would a sale necessarily be required in order to serve. We can speculate nonetheless. (tickers mentioned: AYX, CME, FB, FDS, FIS, GOOG, IBM, ICE, INFO, JPM, LSE, MSFT, SSNC, VRSK)
There are a number of prospective Bloomberg LP acquirers ranging from private equity to traditional strategic acquirers (Financial Technology and Information Services firms) to non-traditional strategic acquirers. Before we contemplate potential strategic acquirers, let’s set the scene. Bloomberg LP would obviously be a significant acquisition. We estimate that the core terminal business has approximately 325-350 thousand users at approximately $20,000 per user per year. This implies $7 billion of annual revenue. Assume a 40% EBITDA margin ($2.8 billion) at a 15x EV/EBITDA multiple, which implies an Enterprise Value of $42 billion. Add to that Bloomberg’s news service, although we believe most prospective buyers would sell-off the news service.
Eliminate the Noise
Let’s first address recent rumors. We do not believe that Microsoft (tkr: MSFT) is a realistic buyer. This was a rumor that was floated years ago when Steve Ballmer was CEO. Microsoft is a different company under Satya Nadella. Nadella’s strategic priority is to grow Microsoft’s cloud and edge computing businesses (Azure). This puts a premium on broadly-defined AI, advanced analytics and remote servers. Microsoft is focused on recruiting third party application developers to build on top of Azure and to fully-leverage Azure’s embedded AI capability. Many companies for example build conversational AI applications on top of Azure (approximately 3,000 conversational applications are created each week). Were we Microsoft, our strategic M&A effort would be focused on acquisition targets that have AI expertise (Alteryx, tkr: AYX comes to mind) as well as hardware companies that could help Microsoft drive Azure’s performance.
Similarly, we do not believe that Google (tkr: GOOG) is a realistic strategic acquirer. It too is focused on broadly-defined AI and products that feed and strengthen Google’s AI models (think Search, Google Home, WiFi, Pixel, Assistant, Lens, Translate and more). Google’s cloud-based gaming service – Stadia – is a significant strategic bet and places a premium on data center performance.
IBM (tkr: IBM), is the other company we hear mentioned but don’t buy as a potential strategic acquirer. We have advocated for years that IBM acquire smaller information services companies such as Solera (private), Verisk (tkr: VRSK), IHS Markit (tkr: INFO) and Factset (tkr: FDS), among others. We first wrote that IBM ought to use M&A as a strategic lever to remedy its revenue woes back in 2015. Information Services acquisitions would increase IBM’s percentage of revenue from recurring sources thereby enhancing revenue and earnings predictability. Further, these acquisitions would be margin accretive. The fact that IBM has not pursued an Information Services M&A strategy makes us highly skeptical that IBM would move to acquire Bloomberg.
Exit Through the Back Door
Who are the realistic strategic acquirers? First, Bloomberg doesn’t necessarily have to be the Seller. It could for example acquire a smaller, publicly-traded Fintech or Information Services company. Bloomberg could use the acquired company as a vehicle for “going public” and Bloomberg’s leadership team or the acquired company’s leadership team could run the combined company. Smaller Fintech companies with quality leadership teams include Factset (tkr: FDS), IHS Markit (tkr: INFO), led by Markit founder and CEO Lance Uggla and SS&C Technologies (tkr: SSNC), led by founder and CEO Bill Stone.
Larger Fintech companies that would make sense as strategic acquirers include Intercontinental Exchange (tkr: ICE), led by founder CEO Jeff Sprecher, CME Group (tkr: CME), London Stock Exchange Group (tkr: LSE), who earlier this year agreed to acquire Refinitiv, the former Thomson Reuters data terminal business (although it is unlikely that the LSE would be able to execute a deal for Bloomberg while processing the Refinitiv deal). Let’s not forget FIS (tkr: FIS) which sports an $85 billion market cap and is large enough to acquire Bloomberg outright.
Don’t Forget the Banker
The Long Shot
Facebook (tkr: FB), could push into the enterprise space (Facebook for Business hasn’t lit the world on fire), by acquiring Bloomberg in the process acquiring a top notch news service and niche chat service with a sticky user base. This would partially fit with Zuckerberg’s public statements around secure messaging and group chat taking on more strategic importance at Facebook in the years to come while news will be deemphasized.
PE Has A Chance
Private Equity is also a potential acquirer, most likely in some sort of a club deal.
If we were to rank the top three potential acquirers in terms of which company is most likely to acquire Bloomberg, it would look as follows:
1.) Intercontinental Exchange (tkr: ICE). Founder, CEO Jeff Sprecher built his company in large part via acquisitions and Bloomberg would be a first class, data-centric asset that would fit nicely into ICE’s portfolio. The two companies are comparable from a valuation standpoint (ICE $52 billion market cap), and Sprecher’s team could likely grow trading marketshare at Bloomberg’s leading OEMS.
2.) JP Morgan (tkr: JPM). Jamie Dimon values technology and is no stranger to large deals. JPM is a real prospective buyer.
3.) CME Group (tkr: CME) and FIS (tkr: FIS). This would be CME’s largest deal by far. FIS was built on acquisitions by founder and former CEO Bill Foley.