IHS Goes on the M&A Offensive

IHS (NYSE: IHS) is a provider of databases and decision tools for sectors like energy, engineering, and aerospace. The company charges its customers primarily based on subscriptions, which has resulted in a nice recurring revenue base.

Q3 saw revenue of $183.4 million, up 31% for the year. About half of the growth came from IHS' aggressive M&A campaign. Based on its margin improvements, IHS certainly knows how to rip out the costs from an acquisition. Over the past year, operating margins went from 15.5% to 16.1%. Net income came to $21.7 million, or $0.35 per share, which is up from $16.1 million, or $0.28 per share, in the same period a year ago.

For its fiscal third quarter, IHS' M&A team has been putting in overtime. There were several acquisitions, and there are no signs of a slowdown. For the most part, IHS' Q3 deals have been of the tuck-in variety. For example, there was the purchase of PCNAlert, a database of electronic components, for $10 million. There was also the $48 million deal for John S. Herold, which provides high-end research for the energy sector. Out of these, the most notable transaction is the purchase of Jane's Information Group for $183.5 million. The deal will expand IHS' business into defense and security. According to the conference call, IHS' management says that the deal is "on track" and there has been headway in cutting management layers. The next phase is to cross-sell Jane's offerings in IHS' large customer base.

While I've been a bull on IHS, I think investors should hold off right now. The company will need to digest its dealmaking. What's more, the stock price has surged 40% since early June, which puts the valuation at more than 28 times EBITDA. Keep in mind that other data providers -- like Equifax (NYSE: EFX), Thomson Corp. (NYSE: TOC), and Dun & Bradstreet Corp. (NYSE: DNB) -- trade at multiples that range from 10 to 14. In other words, it's probably worth waiting for IHS to dip before jumping in.

Further Foolishness:

• IHS Hogs More Data
• IHS Has Energy, Needs Engineering
• IHS Is Still Energized