What Lies Ahead

A Dozen Trends to Track in 2003

For more than twenty years, Berkery, Noyes has closely monitored developments across the information industry. We continually analyze the market to better anticipate the events that will shape tomorrow’s successful strategies. While no one can prognosticate with perfect accuracy, our forecasts are usually on the money. Here, then, are summaries of the significant trends we’re tracking for 2003 and beyond. Call us today to discuss how these trends might impact your business tomorrow.

1. M&A Activity Begins To Improve In First Half ‘03

After holding off during the slowdown, we expect the number of privately held companies or corporate divisions offered for sale to rise slightly as sellers who postponed a transaction in 2001 and 2002 recognize that markets have stabilized and will not necessarily reward further delay.

2. Cautious Strategic Players Make Room For Private Equity

While the major strategic buyers will tread more cautiously, they will continue to grow through acquisition. Over time, they will not only survive but prosper. Private equity groups, meanwhile, will step up their transaction pace, looking to invest their use- it-or-lose-it cash in companies characterized by strong management and solid growth potential.

3. Tighter Lending Standards Squeeze Smaller Publishers

Tighter lending standards are putting the squeeze on smaller publishing companies that depend on long-term debt to finance product development and free up marketing funds. However, as banks start to address the need to support economic growth, we expect looser lending – and more available cash – in the second half of 2003.

4. S-T-M Publishers Grow Slowly; Still Attractive Investments

Scientific, technical and medical publishers will see limited growth over the next year or two, but are still solid businesses with consistently strong EBITDA. Certain medical segments – both print and electronic – should see an improving market. Scientific and technical products that are closely tied to the library and research markets will see sales stabilize from their earlier softer period.

5. Electronic Information Will Regain Luster

Though its financial performance hasn’t yet lived up to the hype, electronic information delivery still promises to transform the market. Technology’s growing prominence in the legal and S-T-M segments foreshadows its impact in other areas. Initially over-valuing technology investment, then shunning it, the market is now attaching real and supportable value to it.

6. Higher Education Publishers Prospering

The few remaining larger companies are turning out impressive margins and serving their academic constituencies well. A group of smaller and start-up publishers are occupying lucrative niches, and there are more niches to fill. Only the mid-size college publishers are under pressure. Going forward, the higher education market remains attractive.

7. Private Higher-Ed Institutions Will Do Well

For-profit higher education should continue to prosper, particularly as workers seek better skills in a tighter job market. That group includes both on-site and distance learning providers.

8. Advertising-Supported Properties Slowly Gain Strength In Second Half

Advertising-supported information providers – including consumer magazines and B-2-B publishers – should show slow but measurable improvement in the third and fourth quarters of 2003. Improving economic conditions should drive ad spending up three percent or more in 2003.

9. Trade Shows And Conference Business Should Rebound

As in most segments that are dependent on discretionary corporate spending, improvement will be slow and directly in line with overall earnings and economic

10. Corporate Training Will Remain Weak Until Earnings Picture Brightens

Corporate training, on the other hand, will continue to experience lean times until corporate revenue and earnings growth resume and better-skilled workers grow scarce.

11. Renewed Interest In Trade Publishing

Trade publishers with strong non-fiction lists and titles with longer sales life will stir renewed interest. Watch for increasing pace of asset acquisitions at reasonable multiples.

12. Slower State K-12 Spending Offset By US Funding Boost

New federal funds made available through “No Child Left Behind” legislation should help offset slower state and local spending, which is suffering as a weak economy slows state tax collections. We expect a rebound in state K-12 spending in the 2004-2005 budget year.

The Longer View

We expect many of today’s information providers to penetrate deeper into their customers’ organizations; for example, assuming direct responsibility for back-office operations that depend heavily on information management. Similarly, gaming technology will move beyond the entertainment sector to take a prominent role in the education and training markets. Broadband and wireless access will expand to near-universal proportion, transforming the way information in all its forms is aggregated, processed, distributed, and sold.

The information landscape has changed dramatically over the past twenty years, and will do so again in the next twenty. Some of today’s leaders didn’t even exist back then, and no doubt will look very different a decade or two from now, while companies that are today in early development stages will emerge as diversified leaders tomorrow.

No one is promised success in this rapidly transforming market. Rather, it will go where it always has: to those who formulate strategies that not only respond to change, but lead it.