Review of Subscription Research Advisory Companies

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Review of Subscription Research / Advisory
Companies
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Outline

• Overview of Subscription Research / Advisory
  Companies
• Attributes
• Operating statistics
• Transaction values
• Profiles of Publicly Traded Companies

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Company Attributes

• High value knowledge and information
• Renewable retainer services
• Inside the professional community
• Client contact and advisory services provide
  feedback loop

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Selected Industry Participants

• Gartner Inc.
• Forrester Research
• The Corporate Executive Board
• The Advisory Board
• CoStar Group
• Datamonitor PLC

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Sector Overview

• Maturing market for IT research services
• Overall spending on IT research lower than
  2000-01 level
• Modest annual revenue growth among large public
  companies
• Spending on best practices research is healthy,
  growing and profitable
• Corporate Executive Board and The Advisory Board
  Company continue to thrive
• Other segments also show good vital signs

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Acquisition Activity

• Until mid-2001, participants made smaller, add-on
  acquisitions to broaden geographic reach and
  product mix. After a slowdown during 2001-2002,
  the past few years have seen consolidation
  through strategic acquisition among research
  firms specializing in IT

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Transaction Values have Declined

• Median transaction values until 2003
• 2.4x Revenues
• 14.7x EBITDA
• Median transaction values 1/1/2003 till now
• 1.2x Revenues
• 10.0x EBITDA

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Divergence of Results and Values

• The public companies focused outside IT The
  Advisory Board Company, Corporate Executive Board
  and CoStar have shown sustained growth and
  profitability
• Investors are assigning premium valuations to the
  companies exhibiting higher margins and
  consistent revenue trends

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Financial data reflect the demand environment

• IT research spending has been hurt by several
  factors
• Tech bust
• Substitution by corporate customers
• Internet research
• Business analytics software
• More sophistication about IT among customers
• Public companies report several statistics useful
  for gauging activity
• Renewal rate
• Contract value or agreement value

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1 - Data from 6/04 2 - Exact data period during
year varies between companies because of fiscal
years and available information
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Gartner Inc. (IT)

• Profile
• Largest provider of subscription based research
  and analysis on the information technology
  industry
• Provides research advisory services, custom
  consulting and conferences/symposia
• Founded in 1979 - Headquartered in Stamford, CT
• Gartner has made over 30 acquisitions since going
  public in 1993, most recently acquiring META
  Group (12/04) for 162 Mil (1.2x revenue)
• Several years of shrinking contract value then
  stabilized in 2004
• Yet margins continue eroding
• EBITDA margin, at 8.2 of revenue, is one third
  the level achieved in growth era

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Forrester Research, Inc. (FORR)

• Profile
• Research and analysis on the impact of emerging
  technologies
• Seeking to lead with ideas
• Delivers research through advisory services,
  publications, on-line database and major
  conferences
• Contract value has fluctuated dramatically

• Renewal rate has recovered from a low of 50 to
  72, but still lags the non- tech firms (87
  90)
• And EBITDA margins at 15 - are one third lower
  than previously

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The Corporate Executive Board (EXBD)

• Profile
• Provides research and analysis on best
  practices for large corporations
• lt Completed IPO in February 1999
• 20 discrete subscription programs covering
  multiple functions incl. strategy, sales,
  finance, legal, banking, etc.
• Deliverables include published studies,
  conferences, on-site executive education,
  customized research briefs and proprietary
  database
• Continues to record significant year over year
  growth rates around 30 for each of the past
  six years
• EBITDA margin is stable at nearly 30
• Contract value a leading indicator continues
  upward trend

15
The Advisory Board (ABCO)

• Profile
• Best practices research and analysis for
  healthcare industry
• Founded in 1979, became public in IPO in October,
  2001 with all shares sold by the principal owner
• Membership business model with over 2,100
  hospitals, health systems, insurers, pharma and
  healthcare companies belonging
• Offer 13 distinct programs of which 7 were
  introduced since April 2000. Renewal rate of 84
• Revenue growth picked up since 2000-01
• Averaged 24 in FY2002-04
• But most recent 12 months growth has slowed to
  16
• EBITDA margin improved from low teens to 26 27
  in recent years

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CoStar Group, Inc. (CSGP)

• Profile
• Provider of commercial real estate information
  and analysis in digital format
• Proprietary database covering 50 markets
• Sells access to its database on subscription
  basis
• Completed IPO in August 1999
• Acquired leading competitor, Comps.com in
  November 99
• Continued revenue growth (roughly 20 pa) in 03
  and 04
• Improved margins as increasing revenue covers
  fixed costs
• EBITDA margin in 2004 was about 17 - up from 7
  in 02 and negative before that

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Datamonitor PLC

• Profile
• Provides global market research and analysis
  covering the technology, financial services,
  healthcare, consumer, energy and automotive
  sectors
• Provides subscription products and services
  including Strategic Planning Programs and
  one-time Market Reports
• Markets through its web sites and other
  distribution channels and through relationships
  with Reuters, Financial Times Ltd., Thomson
  Financial
• Financial results improving
• Growth rate of 16 17 in most recent two years
• Profits reported after several losing years
• Acquired Butler Research Group in early 2005

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Stock Performance Chart