Recent consolidation among industry analyst firms reached a climax today with Forrester Research (Nasdaq: FORR) announcing that it is initiating a tender offer for Giga Information Group (OTCBB: GIGX). Forrester outlined the rationale and anticipated benefits to shareholders and clients during an investor briefing. See bottom of this page for links to other industry analyst consolidation news.
Forrester and Giga Reach Definitive Acquisition Agreement
Forrester announced a definitive agreement with Giga Information Group in which it will initiate a tender offer for Giga Information Group at $4.75 per share, or approximately $60 million in cash. Forrester expects the deal to close during the first quarter. Integration plans are currently in process and will be announced after the deal is completed.
During the Forrester investor conference call, George Colony and Warren Hadley focused on five factors driving Forrester’s M&A move:
- Coverage: The Giga products widen Forrester’s product line. While Forrester has always sold research on emerging technology to marketing, CIO and direct staff clients, they do not have a deep-research offering for IT professionals who are making key, day-to-day decisions on technology. During the technology recession, this type of research has had high persistence at accounts.
- Client Accounts: As of the last quarterly report, Giga had approximately 1200 clients, with a renewal rate in the low 70 percent range. Of these, approximately 900 would be new to Forrester. Perhaps half of these are Gartner clients, providing a competitive inroad for Forrester. Looking at market presence, Giga has strong penetration into government and the investor community – areas Forrester has not focused on in the past. On the flipside, Forrester estimates that 900 of its clients do not receive Giga research. Forrester management believes this represents an opportunity to cross-sell.
- Culture: The companies embrace similar ethics, values and methodologies. Giga has an objective and high quality ethic which is close to Forrester’s. Both firms have a definitive research integrity policy, publicly posted on their websites. Giga’s research tends to be objective and to-the-point, similar to Forrester’s approach. Giga pioneered the no-barriers research model, which is similar to Forrester’s WholeView service model and a competitive differentiator to Gartner’s research packaging strategies. Also, both firms are located in Cambridge, MA, US. Forrester management believes close proximity would be a big help during an integration phase.
- Consolidation: The deal positions Forrester as one of the top players in the business. Forrester believes this deal would position it as the number 2 player in the industry. This is an important factor as companies cut back their research contracts to the top 2 or 3 providers. Forrester management believes this will help it retain client companies and enrich Forrester contracts.
- Financials: Forrester believes the deal would increase shareholder value and that the financial engineering works for Forrester and its shareholders. At $4.75 per share, Forrester expects the cost to be approximately $60 million. In addition to gaining new clients in 2003, Forrester sees potential gains in agreement values, increased revenues, and substantial cost rationalization for creating efficiencies and savings. They anticipate the combination of these factors will result in increasing GPS and increased cash flow, driving shareholder value in 2003 and beyond.
Forrester noted that this is the third time they looked at acquiring Giga. Earlier, the price was too high and Giga was loosing money. Robert Weiler, the 3-year Giga CEO and Chairman who stepped down in August 2002, not only turned Giga around but taught the company to adopt a profit mentality.
In their closing comments, Forrester asserted that they believe the acquisition of Giga will make Forrester strong financially. The acquisition would improve Forrester’s performance in these tech recession times and also through future periods of growth. The acquisition gives Forrester more market power, a wider range of clients, a richer portfolio of products.
CBSMarketWatch reported that Giga shares skyrocketed, as Forrester shares fell, following the announcement.
Please note: All information subject to standard safe harbor caveats and restrictions.
Recent Tekrati News on Forrester and Giga
Related Tekrati News on Industry Analyst M&A’s
Reprinted from Tekrati