By Yizhu Wang
What kind of data can help hedge fund traders and portfolio managers decide when to to be short and when to go long? Earnings transcripts? SEC filings? Sure, but also, perhaps, where the company’s jets fly their top executives.
In January 2017, one week prior to Johnson & Johnson’s announcement of its $30 billion acquisition of Switzerland-based Actelion Pharmaceuticals, the Johnson & Johnson jet stayed parked near Actelion for five days, according to Quandl, a New York-based alternative data company whose database turns corporate aviation information like this into actionable insights for financial professionals.
For years, market participants such as investment banks, exchanges, and hedge funds have been poring through data to build a competitive edge in quantitative trading and investment management, but more recently, they’ve been turning to an emerging group of fintech data vendors using more advanced analytics and extensive data sources.
Fintech companies that specialize in making data relevant for investment purposes have attracted strong equity investment and M&A activity from strategics and private equity investors. Quandl, as an example, was acquired by Nasdaq last December.
Investing in these startups represents an opportunity for traditional financial technology companies to diversify their revenue streams, says Chris Pedone, executive director at New York-based investment bank Freeman & Co.
Alternative data in focus
The scope of data used by financial professionals has become more diverse, including job listings, social media posts and satellite images, as well as foot traffic at stores. Because of the application of artificial intelligence, machine learning and natural language processing, companies are able to make vast pools of data easier to search and view, and more accurate in predicting future trends—or formulating investment decisions.
While Bloomberg and Thomson Reuters are established traditional financial data vendors, specialists in alternative data are smaller and less well known, including Neudata, BattleFin, as well as Quandl and Eagle Alpha, says Dale Richards, managing director of Island 20 Ventures. Richards was formerly a board member at Quandl and now sits on the board of Eagle Alpha.
Alternative data providers have emerged in the past few years to meet the demand by investment firms for unique business metrics to help them generate alpha, a technical term for excess return, notes Alexis Kalmanovitz, managing partner at boutique investment bank Zelig Associates. Exchanges as well as data vendors, such as FactSet, Bloomberg, S&P Global and Refinitiv could use acquisitions to strengthen their position in alternative data, Kalmanovitz adds.
Alternative data is also being applied to environmental, social, and governance (ESG) analytics, Pedone said. San Francisco-based Truvalue Labs helps buyside firms calculate the social impact of their investments. While incumbent companies such as MSCI, Institutional Shareholder Services (ISS) and Bloomberg offer tools for ESG analytics, Truvalue Labs has a niche in leveraging alternative data, Pedone added. Truvalue Labs’ data sources take non-financial information into consideration, such as blogs, news stories and social media.
Traditional data providers maturing
In the context of providing financial data and information, fintech data vendors typically fall into one of four specialties – business and consumer intelligence; corporate and financial market data management; financial media; and investment and securities information providers, Pedone said. In 2018, this space had 163 M&A deals, according to a report by Freeman & Co.
FT Partners estimated that global technology companies in capital markets and wealth management raised $8.6 billion in capital in 2018.
Among the more sizable deals, in 2017, Nasdaq acquired eVestment for $705 million to increase its analytics revenue in the asset management space. The same year, Moody’s acquired business intelligence provider Bureau van Dijk for about $3.3 billion to expand its financial data and analytics capabilities.
More recent deals include IHS Markit’s $1.9 billion acquisition of Ipreo, S&P Global’s $550 million acquisition of Kensho Technologies, Fitch’s purchase of Fulcrum Financial Data, ION Group’s acquisition of Dealogic and Blackrock’s purchase of eFront.
ION is continuing the acquisition spree. This week, the Irish fintech investment group announced the acquisition of a majority stake in Acuris, the parent company of Mergermarket. Existing investor BC Partners will retain a stake. The deal was valued at £ 1.35 billion, according to the Financial Times. Acuris, a London-based provider of financial news and data, competes with many of the other companies.
PE roll-ups expected
Several financial data categories have seen mature companies drawing PE buyers, and now, the PE-backed companies could look for further acquisitions.
Commercial data company Dun & Bradstreet could be a logical buyer of financial data and analytics companies, Pedone said. Dun & Bradstreet was taken private last August for $6.9 billion by an investor group led by CC Capital. In the energy and agriculture information vertical, Genstar-backed data analytics company Drilling Info said in a press release that it would like to use acquisitions to grow.
For institutional investment management, Resurgens Technology Partners acquired InvestorForce in 2018 from MSCI and merged it with its portfolio company InvestmentMetrics, Pedone noted. The combined company has a sizable customer base representing over $10 trillion in combined assets under management.
Real estate and property data is another active area, with the potential for further roll-ups. Pedone pointed to logical acquirers such as Lovell Minnick Partners-owned ATTOM Data, Golden Gate Capital-owned Green Street Advisors and Stripes Group-backed Remine.
Yizhu Wang covers financial technology for Mergermarket and Dealreporter based in New York. She can be reached at [email protected].