KUHN CAPITAL Wednesday, October 18, 2017
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Data Payday

July 11

With VNU’s announcement today of its pending purchase of IMS Health for nearly $7B, we found ourselves wondering if some M&A prices were entering nosebleed territory.

IMS, which tracks pharmaceutical product sales, is indeed quite profitable: over the last four quarters its net has averaged about 15% of its $1.6B in sales. But growth has been spotty. For the period 2001 – 2003, it was effectively flat, though since then sales have increased to an annualized rate of about 5%

One thing IMS has is highly reliable client relationships: its data are indispensable to how drug “detail men” are compensated and how healthcare product manufacturers monitor their market share and competition. In this regard the company enjoys a sort of monopoly, similar to the one that a VNU subsidiary, ACNielsen, has in TV ratings.

So the IMS business model fits VNU and allows the Dutch parent to dig deeper into the rich American market. But the price paid is rich indeed -- 30 times trailing earnings. Just as a reminder, that’s 30 years' worth of current annual IMS earnings, and it's paid upfront.


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