If you can't eat your own words, you may as well eat someone else's numbers. Morningstar (NASDAQ:MORN) announced Monday morning that it will acquire Ibbotson Associates in an $83 million deal that will help bolster Morningstar's equity research and asset allocation business.
If the name Ibbotson rings a bell, it's because we (and others) have often pointed to the researching outfit as the source for historical stock market data. Of course, it's not all about the past with Ibbotson. The company rang up $37.2 million in revenues over the past fiscal year, assisting brokers, advisors, financial planners, money managers, and individual investors in piecing together ideal portfolios. Ibbotson's software products do everything from investment analysis to financial planning.
So how will Ibbotson help Morningstar? Many still associate Morningstar with its mutual fund research, which helped demystify mutual funds the way we here at Fool.com have attempted to simplify stock ownership. In fact, Shannon Zimmerman cut his teeth as a mutual fund analyst at Morningstar before launching Motley Fool Champion Funds last year.
However, Morningstar has been building out its equity research department for years now. With brokerages and mutual fund companies now encouraged to seek out independent market research, Morningstar has been one of the companies to answer the call. Merging with Ibbotson opens up many possibilities -- perhaps none more important than the Ibbotson Rolodex.
Investors in Morningstar have been rewarded during the company's brief public tenure. The company has seen its shares nearly double since May's successful IPO. Unlike the traditional market debut, Morningstar went with an auction-based offering. Other companies like Google (NASDAQ:GOOG), Boston Beer (NYSE:SAM), and Bank of Internet (NASDAQ:BOFI) have also used auction formats in the IPO process to make sure that individual investors got a crack at initial ownership.
Morningstar hasn't disappointed the early believers. Profits per share have doubled through the first nine months of the year, and revenues have risen by 27% in that time after climbing 29% higher through all of 2004.
Ibbotson will only add to that growth, and it's coming at an attractive price. Morningstar is buying Ibbotson for 2.2 times trailing sales, while Morningstar is trading at 7.4 times trailing sales. A year ago, Dow Jones (NYSE:DJ) paid 7.3 times sales for MarketWatch.
Will the consolidation continue? The New York Post on Friday reported that a buyout of TheStreet.com (NASDAQ:TSCM) was in the works. That wouldn't come as much of a surprise, since the company put itself in play when it hired an investment banker to explore "strategic alternatives" back in January. However, with TheStreet.com swinging back into profitability and its share price appreciating nicely, one has to wonder whether the company should even be pursuing an exit strategy at this point.
Interesting times, indeed. I wonder if Ibbotson has the historical data for sector consolidation handy?
Longtime Fool contributor Rick Munarriz believes that mutual funds are an important part of any stock portfolio. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
