A new Goliath: what’s next after the Clarivate/CPA deal?

This summer marked one of the biggest ever shake-ups in the IP services industry. What does the merger of Clarivate and CPA Global mean for customers and other providers? Rory O’Neill reports.

It’s perhaps the biggest news the IP services sector has ever seen—Clarivate Analytics will merge with CPA Global, creating what the two companies say will be a “world leader” in the field. But the deal will leave smaller providers having to work harder to compete in a market that is being increasingly swallowed up by a select few.

The news is hugely significant for CPA Global, which itself acquired Clarivate’s IP management business in 2018. CPA shareholders will own 35% of what will be the undisputed dominant player in the sector.

Simon Webster, chief executive officer of CPA Global, said the deal was a “natural next step” in the development of both companies.

Behind that lie serious concerns over a trend in the IP services sector towards “consolidation”, and the formation of ever-growing giants that increasingly dominate the sector.

There are also immediate worries for those working at the soon-to-be-merged companies—the threat of redundancies. When asked about the possibility of job losses, a Clarivate spokesperson said: “As can be expected with a transaction of this type, there may be some overlap across functions between the two companies, which we will work through together through the lens of our core values and with respect and transparency.”

The spokesperson added that Clarivate expects cost savings of $75 million in the first 18 months after the transaction closes.

Competition concerns

What are the implications of this deal for the sector at large? It could mean less competition, less choice for consumers, and less breathing room for smaller companies to survive.

This is the second mega-deal involving Clarivate in as many years. In January 2019, the firm merged with Churchill Capital, in a move that took the company public.

“Being Goliath does not ensure success, it just gives you a certain set of very powerful advantages. But David has advantages unavailable to Goliath.”
Simon de Banke, IP Centrum

That came just months after it secured the purchase of Australian startup TrademarkVision. In December 2019, it was announced that Clarivate had acquired Belgian data provider Darts-ip.

This is now an enormous company with huge reach in the market, and there is no doubt that competition regulators will be watching closely.

“There’s going to come a point when if they keep buying the competition, there will be an antitrust issue,” argues Jayne Nation, commercial director at UK IP firm Wynne Jones (a competitor of the new company in renewals and IP management services).

“In fact, I would have thought that would have happened already, although it doesn’t seem to have,” Nation adds.

None of this is to prejudge the outcome, but antitrust and competition concerns are inevitable when a company is set on dominating the market in this way.

The possibility of divestments, or a scaling back of the company’s market share ambitions—if not now, at some point down the line—should not be ruled out.

The alternative is that the sector is left without much competition at all.

“If this continues, there’ll be one or two behemoths and not much choice,” Nation warns.

A spokesperson at Anaqua, a US IP software provider, said: “The pace of mergers and acquisitions (M&A) in the IP solutions market underlines the importance of IP assets for IP owners globally.

“As a leader in the IP industry, Anaqua has been active in the M&A space over recent years. The focus should always be on clients and understanding how to provide better solutions and services to existing customers and to prospects in the market.”

Anaqua itself announced the acquisition of service provider O P Solutions in June, and merged with fellow software developer Lecorpio in July 2017.

Fact File
  • $6.8bn: the approximate value of the combined companies
  • 12,000: the number of CPA Global customers

Degrees of influence

Simon de Banke, chief executive officer of IP technology innovator IP Centrum, offers some insight on this industry-wide trend towards consolidation.

“If a company dominates 2% of a market, it has some influence; if its dominates 50% of a market it has extreme influence. But this influence is not a linear function of the market share, it is exponential,” he explains.

“This is the reason that market consolidation works from an investment perspective. Every new dollar of capital you invest in increased market share is worth more than the last dollar you spent, so all things being equal two companies are worth more than the sum of their values.”

That’s not to say that there isn’t still a place in the market for smaller, more focused providers—and traditional law firms, where their services overlap.

“IP is a very relationship-driven business sector and it has been ever since it was conceived,” Nation says.

She adds: “Can these large companies have the same quality of relationship and loyalty? I don’t know how they could.”

De Banke agrees that smaller companies can still thrive in the new-look IP services market. “I’d personally rather be David than Goliath,” he says.

“Being Goliath does not ensure success, it just gives you a certain set of very powerful advantages. But David has advantages unavailable to Goliath,” the IP Centrum CEO adds.

The job for smaller providers, in de Banke’s opinion, remains the same: “Be great at what you do and deliver more value than you receive to as high a margin as you can sustain. Clients will flock to you.”

Image: shutterstock.com / Zastolskiy Victor

Issue 3, 2020

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