Artificial Intelligence

Friday, May 3, 2002
Among men and women in uniform, military intelligence is jokingly referred to as an oxymoron. But the military can be very good at data-crunching. Notes ex-British Army Major Caspar Hobbs: "The whole of the military process is driven by information and how to turn that information into intelligence." Hobbs realized that it just might be valuable to use the Internet to provide similar useful, early intelligence to the mergers and acquisitions (M&A) market. With that goal in mind, and aided by two investment bankers and one financial journalist, Hobbs launched mergermarket (www.mergermarket.com) in London in January 2000.

Once an M&A deal is announced in the financial media, it signals a lost opportunity for the investment bankers and law firms that might otherwise have gotten involved, because the key players by then will have assembled their teams of advisors. So mergermarket's network of specialists ferret out advance information that most of us would consider arcane, but M&A experts find fascinating — and potentially lucrative. For example, the chief executive of a Czech bottling company might make it known to mergermarket that it is looking to be acquired. That gets put into the database, and becomes available to an investment banker who has a client that just might be interested in a Czech bottler. Mergermarket's clientele falls into five categories: investment banks; private equity funds; lending banks; law firms; and corporations. And clients from all five categories pay an annual subscription fee for the service, amounts that are proprietary and can't be divulged.

Mergermarket also has a valuation service that publishes historical data on previous deals in various sectors, which can be used to help place a market value on current acquisitions. And it's become a quarterly fixture in the financial media for its league tables that show which investment banks and law firms have had the most volume. While that's meant as a service for corporate clients, it's also been a useful marketing tool for mergermarkets.

Ironically, since its launch, "the M&A market has been very stagnant," Hobbs admits. But the recession may have been a blessing in disguise. In a bull market, the investment banks have clients knocking on their doors, but in lean times they've got to solicit for business. "The downturn has made us a much more valuable tool," he says, adding that his renewal rate is in the high 90s. Moreover, companies and advisors involved in demergers, including spinoffs and trade sales, find mergermarket's data is also useful.

Mergermarket has received $5.8 million in outside financing, but on a monthly basis, has been cash-positive for two years. Originally, Hobbs meant to use his financing to expand into the United States, but delayed those plans because of last year's market turmoil there. Instead, mergermarket has been developing new products that he isn't quite ready to announce. And Hobbs still anticipates entering the U.S. market later this year. That is, if the advance word is that conditions are ripe.