View from City Road: Reed taps the legal boom

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The Independent Online
By the end of the decade one in every 250 Americans will be a lawyer. Their numbers are rising by 5 per cent a year; the number of cases heard in US courts is increasing almost twice as fast.

For any normal corporation, this would be a prospect fit to curdle the blood. For Reed Elsevier, the Anglo- Dutch publishing group that has just spent almost pounds 1bn on the Lexis and Nexis databases, it brings a warm glow.

Fuelled by the mass of legal information spawned each day in thousands of American courtrooms, the on-line legal information market has become one of the fastest-growing and most profitable media businesses in the US.

Worth around dollars 2.9bn last year the US legal information business is growing at about 6 per cent a year; on-line growth has been 50 per cent faster. The intrinsic attractions of the business were not the only factor which made Mead Data Central, the company which owns the legal and business databases, a 'must buy' for Reed. At a stroke, Reed has satisfied all its main strategic objectives.

Pierre Vinken, the driving force in the company following the departure of Peter Davis, sees Reed as a pyramid; consumer publishing on the bottom, business publishing occupying the next layer, then professional - legal, medical and financial - and, at the apex, scientific publishing. The nearer you get to the top of the pyramid, the more profitable and attractive the business, he argues.

Expanding Reed's scientific publishing interests is virtually impossible, however. There is nothing left of any significance likely to come onto the market. Professional and, to a lesser extent, business publishing is accordingly bearing the brunt of the ambitions of this very ambitious group. With its legal bias - Lexis has half the market for legal on-line information in the US - MDC was clearly ideal.

Mead has other advantages too. Reed badly needs to gain experience of electronic publishing if it is to exploit its own valuable copyrights in the legal, medical and scientific arenas. Building its own networks from scratch always looked an unattractive way of breaking into the market. Mead will give it instant access to one of the world's most developed database networks.

Given how much the group wanted it, and the stiff competition it faced, the terms look reasonable. At around 19 times earnings, the price is comparable to Reed's own rating. No doubt this acquisition will be labelled in some quarters as part of the 'multi-media' revolution. Unlike much of what's happening on this front, however, this deal seems to make sense.