Thursday, January 12, 2012

Is Lexis the Next Acquisition for Bloomberg?

Today, Bernstein Research. released a report: Reed Elsevier: Voices Calling for Asset Divestitures Should Grow Louder, and Perhaps Fall on Deaf Ears which includes some significant implications for the legal publishing marketplace. The report recommends that Reed Elsevier divest some units including LexisNexis and suggests by implication that Bloomberg Law is standing by and ready to purchase those assets.

The report also notes that interviews with U.S. law librarians were a key source used in the report.

The report bluntly describes the LexisNexis problems as” intractable.”

These problems include:

1. Reed Elsevier’s lack of investment in core legal content has hurt Lexis’s competitive position.

2. Although the legal industry is slowly recovering from the 2008 downturn, law firms have not fully recovered and Lexis is currently signing renewals at deep discounts.

3. LexisNexis’ recent product innovations have lagged significantly behind those of ThomsonReuters. WestlawNext was released about a year ahead of LexisAdvance.

4. Bloomberg Law has become a real competitor. Acquisition of the Bureau of National Affairs (BNA) demonstrated both Bloomberg’s seriousness in claiming a stake in the legal market and the fact that Bloomberg has a lot of cash to do it.

Lexis strategies briefly noted in the report:

1. They plan to charge for future releases of Lexis Advance. This idea will not be cheered by the subscriber base.

2. Taking a more modular approach to new products  by targeting specific types of users and practice areas. I see little evidence of this in the large firm market. The report doesn’t explain what it means – but I think I speak for others on the consumer side of the market when I say a modular approach. would be very appealing to many “soon to be ex-customers.” Lexis and other legal publishers need to recognize that it’s time to let  customer’s choose the modules of content which they need. The market has shrunk, law firms are focused on cost control and redundant content is an easy target. Hunkering down in the delusion that the "gravy train" of the 90’s is pulling back into the station is likely to backfire and accelerate outright cancellations.

The Report’s Recommendation

Reed Elsevier should stop trying to wish away Bloomberg and consider selling off LexisNexis while it still has some value.

Although Reed Elsevier outperformed the market in 2012, Bernstein report indicates that there will be continued shareholder pressure to dispose of assets. Management may be nearing the point of considering this option.

What the report does not say:   Law firms remain focused on cutting expenses and  redundant content is rampant in the many "iconic" digital products traditionally subscribed to by large law firms. Law firms are beginning to do the math and recognize that they are paying “a king’s ransom” for the marginal benefits of maintaining access to a small subset of truly unique content offered by each vendor. The retrenchment in the legal industry means that clients are less willing to pay for online research. The decline and perhaps impending abolition of cost recovery means that there will be less tolerance for the support of two major vendors. Oh wait a minute, there are now 3 major vendors: Lexis, Westlaw and Bloomberg. I hear the sound of some large contracts "falling off the table."

Implications for Potential Bloomberg Subscribers. One of the most appealing distinctions of the Bloomberg Law subscription is the “all in” approach. Unlike Lexis and Westlaw contracts which traditionally drove revenue and enhanced cost variability by “excluding” new content and functionality from existing contracts, Bloomberg will take the opposite approach and enhance predictability. They have repeatedly stated that they will include all new content and functionality in existing subscriber agreements at no additional charge. This means that current existing Bloomberg Law subscribers will not have to pay extra to get access to BNA content. By implication in a hypothetical purchase of Lexis, all Lexis would be absorbed in the same way.


7 comments:

  1. Interesting question, Jean. My gut feeling is that Lexis is too big to be acquired… in that I don't think that Elsevier could get anywhere close to the value that they think it would be worth. Bloomberg already has primary law, and their own citator, plus dockets and now BNA. Perhaps they can simply wait for Lexis to implode and then buy up some of the secondary and tertiary pieces at bargain prices.

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  2. I completely agree, Jean. Moreover, Lou Andreozzi was a regional SVP with Lexis in 2005. He knows RE from the inside. Back in October when LA joined BL, my first thought was that he'd build BL into a competitor, by going after the faltering BNA (IOMA/BNA Books)and making it more profitable under the BL umbrella. So what's next? BL needs primary sources...Will BL go after less profitable books or online files with either RE or T-R and "take them off their hands?" How about K-W and CCH Intelliconnect and Aspen titles? I think the game's afoot and Andreozzi's BL is out to be a very big fish by eating smaller fish and getting bigger yet.

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  3. This is a good piece Jean. I tend to agree with what Greg wrote above. Lexis is unfortunately unwilling to admit that they have not properly invested in their products and services. If they continue along their current trajectory, they will marginalize themselves and in concert devalue their position further. My guess is that they will probably end up unloading various pieces past their “sell date”. For fairness of transparency, I do work for a Lexis competitor.

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  4. I think a more likely scenario is that Lexis would be spun off into its own entity and some of the non-core products sold-off piecemeal, ie: Redwood, InterAction, etc...

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  5. each regional unit of lexis should be sold separately as there is very little synergy among regional units. Lexis uk, Singapore, Australia, South america and US should be sold after un bundling to get a better price

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  6. Nice article, That would be great ! Maybe it would pull TM back out of the dumpster lol ... its getting increasingly difficult to recommend a product that is not properly supported, updated, priced.

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  7. A sale to a PE firm may be the best way out of the conundrum. The sound of strategic silence around LN is deafening. PE makes more sense that going public because the the heavy tech and content investments that are required. Bloomberg may have a marketing match made in heaven, but it doesnt have infinite resources nor does it have any magic with the Anti-Trust departments of various countries. Post divestiture, you have the Risk unit and the rest of Reed Elsevier which could buy a a LOT of stock and stabilize its borrowing in a downsized mode.

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