Big Fish Among Sharks
Merger advisory firm Marlin & Associates recently brokered the sale of Tenfore Systems to Morningstar. Chief executive Ken Marlin spoke to Inside Market Data about his views on the M&A landscape, his predictions for activity in the market data industry, and his love of all things New York.
IMD: For the uninitiated, can you tell us a little about Marlin & Associates, and what the company does?
Marlin: We are a boutique investment bank that operates at the intersection of data and technology. We advise owners of US and international middle–market technology and technology–enabled information–based companies that are looking to be buyers or sellers.
IMD: How did you personally get into this line of business?
Marlin: I’ve spent 25 years at leading IT companies and advising them on M&A transactions. I started at Dun & Bradstreet where I first led strategy for D&B’s businesses outside the US, then for D&B’s financial information group, which included Moody’s, Interactive Data, DataStream and others. At D&B, I led about 30 M&A transactions, and eventually became senior vice president, with responsibility for that group. I left D&B to become chief executive of Telekurs North America, which had earlier acquired S&P Trading Systems. A few years later, with venture capital backing, a group of us bought S&P Trading Systems, renamed it Telesphere, grew it, made some acquisitions, and sold it to Bridge Information Systems, where I became executive vice president. At Bridge, we bought a number of other firms, including Telerate. Later, I joined private equity firm Veronis Suhler, where I led their efforts to invest in IT firms.
IMD: How did Marlin & Associates arrive at its current niche focus of advising data and technology vendors on strategic mergers and sales?
Marlin: I long had the desire to form a boutique advisory firm focused on this sector. It’s an area that I know well, and one that has not been well served. In early 2002, a group of us at Veronis Suhler saw an opportunity, left Veronis and formed Marlin & Associates.
IMD: Are you typically approached by someone looking to sell a company, or by someone wanting to make an acquisition in a specific area? Does that depend on market conditions?
Marlin: We’ve been around long enough that both buyers and sellers know us and ask us for advice on both. Market conditions don’t seem to change the ratio.
IMD: The leaders of these companies are typically astute dealmakers. What role do you then play in the process, and what value do you bring to it?
Marlin: Most CEOs are smart enough to know what they don’t know. Our best clients are those who have done this before. They know it’s not easy to manage a disciplined, professional "process" to maximize both value and probability of a successful M&A transaction, and that a good advisor can make a huge difference.
We bring value to the process in a number of ways that make us unique. Some CEOs and advisors have some of these strengths. But it’s the combination that keeps bringing us clients and success.
The first factor is simply our focus. By concentrating exclusively on middle–market, technology–enabled, information–based companies, we have developed contacts at all levels of the strategic players and financial firms that invest in this sector. We know the buyers, the sellers, and the terms they are looking for.
The second is our domain expertise. We not only have people with a lot of transaction expertise in this niche, we also have a core group of professionals with relevant operating experience. That combination gives us an unusual ability to understand the needs of our clients and of the person on the other side of the table, and is a big help in closing deals.
Our third area of strength is our team of professionals who know how to get deals done. For example, one of our senior bankers, Paul Friday, has spent 14 years as an investment banker in this sector. Another, Michael Maxworthy, has spent 10 years in this field, and was recently named in Investment Dealers’ Digest’s "40 under 40" list of up–andcoming dealmakers, while Jason Panzer is a former M&A attorney from Skadden, Arps, Slate, Meagher & Flom, former chief financial officer of JCF, and VP of business development at FactSet. George Beckerman, who leads our mid– Atlantic office, also has considerable operating experience.
Another strength is our international transaction capability. Our last 18 transactions involved 11 non–US participants. In our most recent transaction, we advised Tenfore Systems on its sale to Morningstar. A few years ago, we advised Brainpower (Switzerland) on its sale to Bloomberg (its only strategic acquisition to date). And sometimes we advise on transactions that never touch our shores?for example, we advised Beauchamp Financial Technology (London) on its sale to LineData (Paris). Our industry is not defined by geography, and neither are we.
IMD: Is there more or less activity as a result of current market conditions?
Marlin: So far, the market for growing, profitable firms in our niche seems to be holding up. Certainly, we are busy. A few weeks ago, we handled the sale of Tenfore, and we just signed a new client. Due diligence reviews have been extensive, but that’s not new, and deals are getting done. We know a few firms whose business has slowed or who have credit issues and so don’t want to buy or sell right now (this is not a great time to sell a weak company). But we know many others with strong businesses that are still active.
IMD: Has funding for deals dried up the same way that VC funding and credit are now proving harder to obtain?
Marlin: It’s not as bad as the VC world. There are plenty of buyers with cash looking to make acquisitions, though fewer than a year ago. The lack of available credit has impacted some. Uncertainty about the future has had more impact, but overall, good deals are still getting done.
IMD: Are the market conditions generating interest in a particular segment of the market?for example, vendors with high–quality data in specific markets?
Marlin: Unique, high–quality data or analytics are always valuable, especially if a company has reached some reasonable scale (revenues of $10 million or more) and is growing?even more so, if the firm has a recurring revenue model. IMD: What effect are other factors such as the Thomson–Reuters merger having on M&A activity in the market data sector? Will these drive greater consolidation among other players? Marlin: There are thousands of companies in this sector. Some are buyers, some sellers. The vast majority have less than $100 million in annual revenue. We believe consolidation among these firms may slow a bit this year, but will inevitably continue. We rarely saw Thomson and Reuters compete for the same deal?a few times, but not often. So the merger specifically had little impact on M&A activity.
IMD: What areas will see most M&A activity over the next year, and why?
Marlin: There is tremendous interest in vendors that provide sophisticated multi– asset–class tools to the buy side; companies that facilitate straight–through processing or supply chain management; firms with Software–as–a–service (SaaS) revenue models (versus traditional software license and maintenance models); firms that have a material presence in Asia; as well as providers of data or technology related to risk measurement, monitoring, and mitigation; firms that help price or evaluate derivatives and portfolios; provide sophisticated connectivity to market participants or liquidity pools; and more. In fact, there is still plenty of interest in a wide range of IT and information companies?if they have unique products, scale, and a clear, bright future.
IMD: How will the market data industry evolve over the next year? Will the current line–up of vendors still exist in a year’s time, or will we see further consolidation?
Marlin: I suspect we’ll see the big keep getting bigger, and see new entrants. There are a number of large information industry players that are unlikely to go away, such as Thomson Reuters, Advent Software, Interactive Data, Markit, S&P, Moody’s, Fitch, Morningstar, FactSet, RiskMetrics, MSCI Barra and a dozen others I could name. Also, exchanges such as Deutsche Bö rse, the London Stock Exchange, Nasdaq OMX and NYSE Euronext are looking to do more with market data. There are software providers such as SunGard, SAP, IBM, Ion and Orc looking to expand. There are banks, brokers and other socalled "users" looking to market data as a source of growth, such as Bank of America/Merrill Lynch, Credit Suisse, Goldman Sachs, GFI, MarketAxess, Morgan Stanley, Icap and UBS. There are dozens of private equity firms who have identified this sector as promising, such as Advent International, Apax, General Atlantic, TA, Warburg Pincus, and Welsh Carson. Even Bloomberg says it is looking to do deals. I’m not smart enough to be able to pick the winners, but we’re happy to help.
CEO Confidential
Name: Ken Marlin
Hometown: Born NYC, raised Phoenix, Arizona
Education: BA/UC (Irvine); MBA/UCLA; APC/NYU
Current Home: New York
Family: Married, with a 15–year–old daughter
Q. What book are you reading?
A. City of Falling Angels, by John Berendt. It’s about Venice, a city that my wife and I love.
Q. What CD is in your stereo (or iPod) right now?
A. A discography of Willie Nelson songs, including some demos from early in his career. The new Imus Ranch CD is pretty good, too.
Q. What was the last movie you watched?
A. Slumdog Millionaire. We don’t get to a lot of movies, but we’ve seen many great plays including The Overwhelming, The 39 Steps, Sunday in the Park with George, Les Liaisons Dangereuses, South Pacific and, most recently, A Man for All Seasons with Frank Langella.
Q. Which sports team do you root for?
A. Yankees, Rangers, Knicks, Giants.
Q. What’s your favorite city or place to visit and why?
A. New York. It’s all here!
Q. What newspapers or magazines do you read?
A. The New York Times, Business– Week, The Wall Street Journal, Vanity Fair, New York, The New Yorker, and Classic Sports Car.
Q. What was your first paying job, and how old were you?
A. 15 years old at a Stewart’s fast food/root beer/hamburger joint.