Bloomberg reported rumors that McGraw-Hill had out bid it and others at 1.1 billion pounds ($1.7 billion) for energy consultant and advisory service provider Wood Mackenzie. Wood Mac is being flipped by Charterhouse Capital Partners which acquired it in 2009 for 520 million pounds in a fire sale. Other suitors in the auction according to the Bloomberg story include IHS, Thomson Reuters and Bloomberg itself but perhaps not all love it THAT much to outbid McGraw-Hill.
All of this is speculation at this stage and the story itself could be part of the dance to tease out a better bid or give the apparent high bidder ‘buyers remorse’ depending upon the market reaction to the bid price. But whichever firm wins the auction there are a lot of questions about what this means for WoodMac and its competitors.
McGraw-Hill. MHP is no stranger to the energy information space as the corporate parent for Platts and previous owner of DRI-McGraw Hill which was sold off and then merged with its arch rival Warton Econometrics (WEFA) to form Global Insight which was itself acquired by IHS in 2008. The Bloomberg story says WoodMac is a good fit with Platts. The challenge will be who eats whom? Platts is primarily a data company and WoodMac has plenty of oil and gas data to add to the collection. But McGraw-Hill is primarily a publisher and seller of financial data products and has historically not been seen as a consultant nor has it favored one time revenue services so an acquisition risks flight of WoodMac talent and doubt about McGraw-Hill’s strategy.
This acquisition could also be seen as too safe by McGraw-Hill investors if they perceive the capital invested in WoodMac could have produced much higher returns from other deals that better leverage new technology or extend the scope of McGraw-Hill’s business lines into new markets. The biggest risk for MHP is overpaying for WoodMac.
On the other hand, WoodMac may significantly strengthen MHP’s position in Europe and Asia and in the oil and gas space, but WoodMac has been under invested in North America and electric power. This could end up being déjà vu all over again for McGraw-Hill since it previously built up Platts then let it atrophy in the face of competition from Global Energy Decisions now part of IHS.
An MHP acquisition of WoodMac would be seen as good news by WoodMac competitors. They will see one to two years of integration distraction and a high likelihood that WoodMac will be fully digested by the Platts meat grinder. Some of the fears among insiders could be mitigated if WoodMac management is able to retain their sizable position yet again in this flip or take broader roles running Platts , but that may not be attractive for McGraw-Hill or it might be a deal killer at the speculated price. Odds of the deal closing? 50/50. Odds of integration failure: 70/30.
IHS. An acquisition of WoodMac by IHS would be a civil war since the Cambridge Energy Research Associates (CERA) natural gas team defected to WoodMac in a weak period for the firm before CERA was acquired by IHS. The rivalry between CERA and WoodMac significantly raises the integration risk. There is a lot of overlap in the oil and gas space which will require sorting out. CERA’s power team is policy focused rather than transactional. CERA traditionally has shunned quantitative analysis of energy market fundamentals thus is seen as weak. WoodMac lacks bench strength to dominate the North American power market advisory services sector but it is stronger in power than CERA with extremely solid power market quantitative analytics skills. Odds of a deal: 25/75? Odds of integration failure: 85/15?
Dark Horse or Disruptive Change Plays
WoodMac represents one of the few good opportunities for a new entrant in the energy vertical to stake a claim to market leadership in one deal. Strong in oil and gas, strong in Europe, known in the US with the potential to fill the vacuum being left by the exit or scaling back of market leaders Ventyx, Navigant and RW Beck. But who and at what price?
- An investment play from China seeking to gain access to knowledge about North American and EU markets and the technologies at work in the unconventional shales and oil sands and uses that insight to rapidly scale China’s own shale potential—that would be interesting.
- A global database company strong in EU or Asia and eager to scale growth in North America especially in the energy markets and their adjacency could quickly position WoodMac as a global platform for growth.
- A large technology player seeking leverage from insight into world energy markets for use in developing disruptive innovation solutions to satisfy the growing energy demand with end to end analytics, operations and risk management solutions.
The question is whether WoodMac’s true potential will be enhanced or wasted in this flip?Disclosure: I previously worked at DRI-McGraw Hill as a principal as well as at IHS as VP Global Analytics & Data. During the eight years I served as Division President at what became Ventyx/ Global Energy Advisors I built high quality teams of global energy experts. Those teams have migrated to WoodMac, CERA, IHS, Black & Veatch, Navigant and other firms. I am not currently engaged by any of these firms. The views expressed are my own.