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Gartner Acquiries AMR Research for $64m

12/1/09 7:01 am PT – Initial post. Analysis to follow.

12/1/09 11:38 am PT – Analysis added

12/2/09 7:00 am PT – Free SageCircle webinar on acquisition

Replay of the webinar “SageCircle Analysis of Gartner’s acquisition of AMR Research” is now available. To receive a link and password to watch a streaming version of the webinar please email “info [at] sagecircle [dot] com”. Please include your job title and company name

Gartner’s acquisition of AMR Research for $64m, approximately 1.5x revenues, is interesting in that it does not seem to fit neatly into any one of these rationales: 

  1. Additive to expand research coverage, consulting, events and other services
  2. Acquire client base
  3. Acquire sales representatives
  4. Take out direct competition to improve pricing power
  5. Prevent competition from grabbing an asset that would be used against Gartner

First:

Approximately 75% of AMR’s enterprise clients were in manufacturing/supply chain which is not consistent with Gartner’s core CIO organization. Gartner CEO Gene Hall has doubled down on IT since taking over in 2004 and eliminated non-IT focused business such as Vision Events. So does this represent a change in strategy? Perhaps the Datamonitor-Ovum strategy of going after both business and IT leaders has caused Hall to modify his approach?

AMR is primarily focused on ERP/enterprise applications, manufacturing, supply chain, retail, and sourcing. While Gartner does have some overlap, it is very uneven from one area to another. While Gartner does have a manufacturing vertical, the number of analysts is small, only seven. Furthermore, Gartner does not have brand equity in the manufacturing space so acquiring AMR manufacturing assets makes sense. Gartner’s retail analysts number just six so combining those with AMR’s analysts also makes sense. However, AMR has lost one of its top retail analysts, Janet Sherlock, just this week. Sourcing is an area that is one of Gartner’s strengths with 40 analysts listed in that space. AMR’s sourcing research took a huge blow when Phil Fersht left in late September so that particular area might not be of interest to Gartner. ERP and supply chain are grouped together at Gartner with 27 analysts. While Gartner has a strong reputation in enterprise applications, including ERP, it has less of a brand in supply chain so combining AMR supply research would be logical.

AMR’s event business is tiny in comparison to Gartner’s with only two or three targeted events per year with approximately 500 to 700 attendees each. Even if Gartner wanted to expand into other types of enterprise clients, it would not have to buy AMR to launch these types of events.

Enhancing Gartner’s advisory/consulting assets might be a possible motivation. As published research becomes more and more commoditized, enterprise clients turn to analyst firms for personalized advice and targeted consulting. Gartner has kept its analyst team relatively constant at 650 even as it has more than doubled the sales force to 952 since late 2004 (according to 3Q09 earnings call). At some point Gartner cannot simply increase the productivity of existing analysts; it must add more analyst headcount in order to support the client inquiry requests in a timely fashion. Adding some of the 40 experienced advisory analysts at AMR would provide immediate inquiry “inventory.” On the consulting side, the aspects of the consulting business that have done well during the recession are those that help enterprises manage their spending with vendors. AMR does have core experience in this area for those topics it covers so this could be net add as well.

Second:

Buying an established client base, especially if there is little overlap with Gartner’s existing clients, could also be a major motivator. Up-selling and crossing-selling existing AMR clients could easily be a winner for Gartner as its breadth of products and services for the CIO’s organization far surpasses AMR’s. During investor events both Gartner and Forrester consistently say that the addressable large enterprise market is underpenetrated.  Getting established relationships with 500 to 700 enterprise clients would be an asset that could be immediately exploited.

Third:

A potentially very valuable asset from Gene Hall’s point of view is AMR’s ~45 sales representatives. One of Hall’s key strategies since taking over has been expanding Gartner’s sales force. Even during the recession Gartner has increased its sales headcount – adding 19 in Q3 alone – even as Hall has told Wall Street that Gartner will not return to 20% sales force growth until late 2010 or 2011. One of Hall’s themes in recent investor calls has been increasing the productivity of the existing sales force. Retaining some or all of AMR’s experienced sales representatives would be a way to get productive sales resources more quickly than the 12 to 18 months that it normally takes to get a new sales hire up-to-speed. Remember, Hall consistently said that META’s sales force was a motivator for that acquisition.

Fourth:

Because AMR’s client base is primarily non-IT managers, this move would not reduce competition and enhance pricing power like Gartner’s META and Forrester’s Giga acquisitions did earlier in this decade.  We don’t see this as a motivation.

Fifth:

Finally there is the issue of whether Gartner was keeping an asset out of the hands of a competitor. Certainly Gene Hall has done this before with his snatching of META out of the grasp of Yankee Group. There were some other logical acquirers of AMR such as Corporate Executive Board, Datamonitor-Ovum, Forrester, or even IDC (for the Manufacturing Insights subsidiary). All of these companies have made acquisitions recently, talk about doing acquisitions, and have the financial resources to do acquisitions.

Analysis:

Our take is that the AMR acquisition is not simply a “take out the competition” move. It is likely to be a complex mix of different motivations. This means that there is great uncertainty from a vendor point-of-view as to what might happen to AMR’s analysts and research coverage. Even though AMR CRO Bruce Richardson said in this blog post that the “the intent is to maintain a ‘business as usual’ mindset” we recommend that clients and vendors take any statements from AMR and Gartner on “business as usual” with a huge grain of salt. This was also the official message from META and Gartner until the day the acquisition closed at which point it was slash-and-burn across the META organization with the exception of the sales team.

The key question for any analyst firm merger & acquisition (M&A) activity is whether the acquired analysts – the core intellectual property value – stay with their new employer or leave. For example, in the case of Gartner’s acquisition of META more than 50% of the analysts left voluntarily or through buyouts within a few months. However, Forrester with its Giga and JupiterResearch acquisitions retained most of the analysts. Even though the recession is still in force, there have been signs that hiring is picking up in the analyst ecosystem and broader IT marketplace, which will give AMR analysts and sales representatives options to stay (at least the ones Gartner would want to retain) or go to other firms, vendors, or enterprises. For example, Datamonitor-Ovum would be a logical home as it moves to expand aggressively.

Free SageCircle Webinar:

 SageCircle will hold a webinar at 10 am US PT on Thursday to discuss what Gartner said in the AR call as well as answer questions you might have. You can register at this webpage. Please feel free to forward this invitation to your colleagues.

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41 Responses to Gartner Acquiries AMR Research for $64m

  1. Ludovic says:

    Hi Carter,

    Here are some thoughts I posted earlier:
    http://iiar.wordpress.com/2009/12/01/gartner-buuys-amr/

  2. peggyoneilliiar says:

    Gartner also sent out a general invite to the AR community for a call on Dec. 3 to promote the deal.

    You can visit Gartner’s site and register for the call at this link:

    http://www.gartner.com/technology/about/analyst_relations.jsp

  3. Gerry Van Zandt says:

    Good analysis, certainly as expected..

    What interests me most is the bigger picture and context, particularly in terms of the IT research industry maturing.

    I’d be interested in a broader piece (particularly given today’s Forrester acquisition news too … hat trick anyone?!?) about the strategic trajectory of major/minor analyst acquisitions over the past 10-12 years.

    Where is it all going? Is this really a consolidation (no.)? What happens for enterprises who want alternative opinions? How will Forrester, Yankee, IDC and Ovum respond? What are the opportunities for the smaller firms who are innovating new business models? What does this consolidation of the big(ger) firms into mega-firms mean for firms like Burton Group, Illuminata, Freeform, RedMonk, Butler Group, etc? Is syndicated/expensive research content already dead?

    Cheers,
    Gerry

  4. Mike says:

    Carter, not likely for CEB, as they are a completely different business model.

  5. Pingback: Announcing the SageCircle free webinar on Gartner’s acquisition of AMR Research « SageCircle Blog

  6. Pingback: Announcing the SageCircle free webinar on Gartner’s acquisition of AMR Research « SageCircle Blog

  7. Merv Adrian says:

    Nice jobas usual, Carter – great details. I don’t think the inquiry volume is so high that it demands analyst headcount – in most firms the numbers per analyst are pretty lumpy, with some analysts very busy and others not so much. I suspect volume is not so high now in the areas of coverage overlap between Gartner and AMR, and I don’t know whether AMR had a strong inquiry culture. Do you have any thoughts on that?

  8. Pingback: AMR clients: action needed! « ITasITis

  9. Kate McNeel says:

    Merv,

    As a vendor client, I can say that AMR has a strong “inquiry” culture. We work with them extensively on inquiry type calls, both for our own efforts and in collaboration as they take inquiries from their client base.

    My personal hope is that the AMR analysts retain their voices. I have always found the corporate personalities of AMR and Gartner to be quite different (in a positive way). Both have filled important, but slightly different, roles for me. I hope that Gartner does not overwhelm the AMR culture completely.

  10. Ludovic says:

    Great post Carter, interesting analysis and well laid out.

  11. Pingback: Gartner buys AMR -what’s the impact for AR Managers and competitors? « The IIAR Blog

  12. “Gartner has kept its analyst team relatively constant at 650 even as it has more than doubled the sales force to 952 since late 2004 (according to 3Q09 earnings call)”

    Off topic but it’s amazing that Gartner has way more sales people than analysts. How can this be? It seems grossly inefficient.

  13. Gerry Van Zandt says:

    John, I think (at least under Gene Hall) you could apply the saying “you have to spend money to make money” in terms of the significant Gartner sales force growth in recent years.

  14. Pingback: While Gartner goes after AMR, Forrester goes after… « The IIAR Blog

  15. Ludovic says:

    Merv, Kate,

    On inquiries, it has to be noted that AMR, like META before had a strong customer intimacy, something hard to preserve within a large organisation such as Gartner.

    Another result of size is also that analysts in smaller firms are less conservative and have greater flexibility for publishing on trends and issues outside their designated coverage area -something quite difficult given the Gartnerian politics.

    Furhermore, the Gartner analysts tend to fill much more inquiries than their counterparts, so existing AMR customers should not expect to keep that proximity. The postitive aspect of this last point is that given Gartner’s reach, analysts are exposed to a much greater and diverse set of customers. This in turn results in often invaluable insight which is hard to match for other firms.

    And that’s what vendors prize the most in the end: end-user insight and impact.

  16. Carter, this is a great analysis and the structure is very useful. The motivation you miss out is that it’s a great deal for Gartner because of the straightforward impact on the bottom line. $64 million is a great price. Gartner will be able to strip overhead out of AMR, improve the productivity of analysts and salespeople and get more value from the wider audience it provides for the insight of AMR.

    John, AMR also had more salespeople than analysts. Sales people bring in more money than analysts. One analyst and two sales people is much better than the other way around. It’s just that most analyst firms are run by analysts, and they value the analysts more. But most potential clients have not had a serious pity from an analyst firm, other than Gartner, so the added sales effort really makes an impact.

    I’ve writte a bit more here: http://www.analystequity.com/?p=1301

  17. Dean says:

    If the Meta acquisition is anything to go by, there won’t be much left of AMR come February. Forrester would have been a much stronger fit. At least AMR’s management made out with a nice sum of cash after all these years.

  18. Gerry Van Zandt says:

    I don’t think you can automatically apply a “META” acquisition mentality to the AMR acquisition, Dean. Different strategic intent for the combination, different organizational dynamics & culture, different leadership.

    Over the years I’ve seen Gartner treat various acquisitions in a variety of ways.

  19. Carter, Nice analysis as usual.
    Regarding the sales aspect, I think you are on the right track with regard to getting experienced sales up to speed. The addition of a group of strong application centric and vertical centric sales people is huge for Gartner. Gartner has built very deep sales teams of many focused on specific clients and client groups. Historically, Gartner has such a big book to sell, getting sales execs that truly understand how to apply verticals or specific technology services to the business has been a challenge (a challenge for any large firm). getting this type of added expertise is a huge plus. Also, retaining acct execs with deep relationships into these install based accts is critical in an acquisition.

  20. In the age of the Internet, why would having large sales force be an asset? Doesn’t this drive up the cost of the research substantially? I assume the answer is that these firms make a profit off of sales people. However, it seems to be a very inefficient process.

  21. sagecircle says:

    Gerry, Thanks for the comment/suggestion.

    There would be several “eras” of M&A activity within the analyst ecosystem with the 90′s being much different than today.

    One thing to remember is that Gartner is not the “mega firm” it was before the Dot Bomb/9-11/End of Y2K when it had nearly 900 analysts versus the 650 today. Even though revenues are way up today versus 2000 the number of topics covered is reduced and the depth of coverage is more shallow for many topics. So there is plenty of opportunity for many firms even post AMR acquistion.

    One key indicator of how serious other analyst firms are is their investment in sales, marketing and branding. It does not matter how smart the analysts are if only a few potential prospects know they exist.

  22. Gerry Van Zandt says:

    Simple: feet on the street, banging on doors. Look at Gartner’s enterprise customer sales growth over the past couple of quarters …. hundreds of new customers. These are often if not mostly obtained by sales staff meeting FTF and cold-calling new enterprise and vendor prospects. In this sense, there’s little difference between Gartner’s direct sales force and a vendor like HP’s or IBM’s.

    You dedicate sales reps and account managers to your largest accounts. At the top 1-2 tiers on the sales pyramid, I’d bet one of my cars that a fairly small number of enterprises and vendors provide the bulk of the revenues.

  23. sagecircle says:

    With the acquisition of TowerGroup, the Corporate Executive Board broadened its portfolio of business models. In addition, CEB explictly said that it want to expand even farther in to the IT best practices and market analysis business.

    CEB is a firm to watch as it evolves and potentially makes additional acquistions.

  24. “One key indicator of how serious other analyst firms are is their investment in sales, marketing and branding. It does not matter how smart the analysts are if only a few potential prospects know they exist.”

    Is this not becoming far easier today to do without large enterprise sales forces? Even if it is a profitable strategy today, it seems ripe for disruption by offering lower prices and using primarily on-line marketing efforts.

    If the strategy is to expand enterprise sales forces, this seems like a move from an antiquated and previous era.

  25. sagecircle says:

    One point is that AMR’s inquiry numbers is about the same as Forresters… with 1/9th the number of analysts. So inquiry is a big deal (plz see http://sagecircle.wordpress.com/2009/08/06/dont-discount-business-value-of-phone-based-inquiries/)

    Agree that numbers of inquiry at Gartner is unevenly distributed across analysts and particular times, but the reports we receive is that workload is heavy.

    Also remember there are not 200 days per year available for an analyst to do inquiries because they are on the road, at conferences,etc. So inquiries tend to stack up on available days rather than spread nice and evenly.

    Yet another point is that not all Gartner analysts do end-user inquiry because they are Dataquest centric with vendors as their primary clients… and vendors do a poor job of using inquiry.

  26. sagecircle says:

    HI Kate, Thanks for the comment.

    Completely agree with your points.

    There is some hope that the AMR legacy analysts will retain their culture as Gartner is so geography spread out and the investment in training on methodology/culture is relatively low that it is difficult for Gartner to impose its culture on acquired analysts who are experienced and have habits.

  27. sagecircle says:

    Hi John, Thanks for the comment/question.

    Advisory analysts can be highly leveraged (e.g., phone-based client inquiry, conference participation, published research and teleconferences) especially in comparison to consultants. Which is demonstrated by the 68% gross contribution margins for Gartner’s research business versus the 36% for consulting. As a consequence, it makes a sense to have lots of sales reps knocking on lots of doors to sell annual advisory services because the “factory” can easily handle one incremental client.

    However, at some point Gartner needs to add analysts merely because the client/analyst ratio will require it.

  28. sagecircle says:

    Gerry,

    As usual you are dead on. Whether it is Gene Hall of Gartner, George Colony of Forrester (who has also doubled the size of the sales force since 2004) or Mark Hurd of HP, increasing the size and productivity of the sales team is an investment that returns more in revenues than it costs.

  29. sagecircle says:

    Ludo, Thanks for the comment.

    Great points. There are pluses and minuses about size of analyst firms. It will be interesting to watch how the AMR analysts adapt to Gartner’s culture, size and larger and more diverse client base.

  30. sagecircle says:

    Hi Duncan, Thanks for the insights.

    Completely agree that Gartner will be able to absorb AMR in a very profitable. Of course, this will be hard on the backoffice staff.

  31. sagecircle says:

    HI Dean, Thanks for the observation.

    This could be an apples-and-oranges situation. The META acquisition was strictly to keep it out of the hands of Yankee, which with other acquisitions could have led to a much more powerful competitor to Gartner.

    The AMR acquistion could – not guaranteed – be one to expand research coverage and services. Thus Gartner would want to retain most if not all analysts.

    I (this is Carter) was at Gartner in the 90′s when it made more than 60 acquisitions. Some saw the the successful retention of analysts, others not so much.

    This will be one of the key points to observe over the coming months.

  32. sagecircle says:

    Hi Rob, Great comment.

    I could not agree with you more. The complexity of the sales opportunities requires experienced sales reps.

  33. sagecircle says:

    Hi John, Thanks for the comment.

    There is a direct correlation between number of sales reps and research contract value (CV). For an experienced, productive sales rep it is approximately $1m in CV.

    Remember, while the Internet/social media are useful for building awareness and generating leads they cannot be the way big ticket (tens of thousands if not hundreds of thousands of dollars) contracts are sold to large enterprises. Plus the more complex the service requires that the vendor understand the prospect’s or client’s situation and position the service appropriately.

    Now individual reports or individual event tickets costing hundreds of or a few thousanddollars can only be sold via ecommerce. But a contract of $500,000 requires the salesman touch.

  34. sagecircle says:

    HI John, Thanks for the follow up comment.

    See Gerry’s and my previous responses.

    Not everything will be disrupted by lower prices and Internet-based marketing. There will always be room in some markets for premium priced products sold by sales reps. Remember Gartner, Forrester, AMR, Ovum and so on are not selling published research, which is increasingly if not completely commoditized. Rather advisory analyst firms sell personalized advice, efficiently delivered. One aspect of their selling proposition is that they will save enterprise IT buyers multiple times the analyst contract through more effective IT purchasing.

    Plus it is not like the firms with enterprise sales forces are ignoring the Internet, they exploit it like boutiques and single practitioners do.

  35. Ludovic says:

    Agree with Carter -we’ll see a dichotomy between those who can reach deep into end-users, at C-level and the others who will have a limited sales influence but collectively will weight on opinions and procurement strategies.

  36. Carter – I think you need to look at the multiple they have likely paid on earnings, their earnings forecast for this unit and what that likely implies. AMR are a private company so data is not readily available but the indications of their business downsizing over the last 12 months plus does not indicate significant profitability. Gartner are saying that they anticipate 4 to 6 cents per share contribution by 2011. On my estimates, that is $4-6 million of profit. Allowing for shrinkage due to some common clients – where is it that Gartner sees this profit? and at $64m what was the multiple on earnings — looks very high to me.

    On the AMR homepage Tony Friscia says “AMR Research and Gartner plan to operate separately in “business as usual” mode until January 1, when integration will begin in earnest”. I think “integration in earnest” clearly indicates a need for major cost cuts by Gartner and rapid and full integration of functions (if not brand) to achieve these goals.

    With AMR far more business focused and Gartner very, very IT focused this is going to take some very significant work by Gartner to leverage AMRs capability set through their existing channels and relationships if they want truly to leverage this acquisition — and not simply remove an annoying competitor.

  37. Erin Kinikin says:

    Hey, Carter,

    Any comment on differences in analyst metrics across the two firms? I’d heard that AMR’s metrics for analysts are much less consulting motivated. (Is it still possible to have an advisory firm whose analysts actually focuses on research and advice?)

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