IHS Inc. (NYSE:IHS)
has reportedly sealed up a deal to purchase the privately held firm that owns the fast-growing Carfax vehicle-information service. Known as RL Polk, the company is one of the foremost information-gathering specialists in the automotive industry and reaches millions of vehicle owners and buyers on an annual basis. Since IHS Inc. (NYSE:IHS) already has significant information-gathering and analytic operations in the automobile industry, this deal is apt to produce some incredible synergies. However, it is by no means a slam dunk.
RL Polk deals directly with about 30,000 customers across North America. Most of its official clients are automobile dealers, credit providers and repair professionals. However, millions of individual car buyers commission its reports through these intermediaries. As such, the company's service has tremendous name recognition. Investors who might naturally be interested in this deal should not overlook the intrinsic value of this superior branding operation.
IHS and its Closest Competitors
Like RL Polk, many of IHS Inc. (NYSE:IHS)'s direct competitors are privately owned. However, the company also competes with a few publicly-owned information-gathering services and analytics providers. Since these businesses engage in far-reaching, often nebulous activities, perfect comparisons may be elusive. The following financial analysis should provide a framework through which investors can judge IHS Inc. (NYSE:IHS)'s relative strength.
IHS Inc. (NYSE:IHS) is often mentioned in the same breath as Thomson Reuters Corporation (USA) (NYSE:TRI)
and Pearson PLC (ADR) (NYSE:PSO)
. However, it is quite a bit smaller than either firm. Thomson Reuters Corporation (USA) (NYSE:TRI)' market capitalization of over $27 billion exceeds that of IHS Inc. (NYSE:IHS) by a factor of four, and Pearson PLC (ADR) (NYSE:PSO)'s valuation is roughly double that of its Colorado-based competitor. IHS's margins are roughly in line with those of its competitors. In 2012, the smaller company earned about $160 million on revenues of $1.6 billion. This compares with a haul of $455 million on $8.1 billion for Pearson PLC (ADR) (NYSE:PSO) and a take of $1.7 billion on $13.4 billion for Thomson Reuters Corporation (USA) (NYSE:TRI).
Surprisingly, these firms require a substantial amount of debt to fund their information-intensive operations. With a debt load of $7.5 billion and an emergency reserve of less than $530 million, Thomson Reuters Corporation (USA) (NYSE:TRI) has the most precarious balance sheet of the three. Fortunately, it has a healthy cash flow figure of $2.5 billion. Meanwhile, Pearson PLC (ADR) (NYSE:PSO) has long-term debts of $3.6 billion and cash reserves of $1.7 billion. IHS has obligations of just over $1 billion and a $320 million reserve. At 4.73, its price-to-book ratio is significantly higher than its competitors' identical 1.65 figures.