DMGT reckons that the acquisition, which will cost it a maximum $210m (pounds 129m), fits well with the group's existing businesses. Peter Thal Larsen reports.
Risk Management Solutions (RMS), based in California, provides insurance companies with information and software which allows them to assess the risk of natural disasters such as earthquakes and tornadoes and helps them to set their premiums efficiently. RMS numbers 300 of the world's leading insurance and reinsurance companies among its clients.
DMGT will pay an initial consideration of $65m, and will make further payments to RMS's founders and management over the next four years, according to performance. The minimum payment is $21m, while the maximum is $145m.
Peter Williams, finance director of DMGT, said the targets for future payments were ambitious. "Obviously, we wanted to put the risk out rather than paying it all up front," he said. "If the management achieve the top amount we will have an extremely valuable business on our hands." DMGT expects the deal to be earnings-enhancing in the first year after the acquisition.
In the year to December 1996, the last year for which audited accounts are available, RMS made a net income of $0.4m on revenues of $24.2m. Its net assets were $10.2m. Given that RMS was only founded in 1988, however, Mr Williams said the company had enjoyed a speedy growth rate.
Mr Williams rejected the suggestions that the acquisition of a software company represented a move away from DMGT's core operations. "It's an information business as much as a software business, and it's a business we're already in."
According to DMGT, RMS is very similar to Cartograph, a UK company in which DMGT holds a 40 per cent stake. Cartograph provides information on subsidence to British providers of house insurance. DMGT has an agreement in principle to acquire the shares in Cartograph that it does not own. The group said it aimed to merge the operations of RMS and Cartograph "in the near future."
The move is part of DMGT's general strategy of expanding the breadth of its media interests.