Clarivate sells sticky data and analytics software to academias, governments, corporations, law firms and pharmaceutical companies. The business reports three main segments, Academia & Government, Intellectual Property and Life Sciences & Healthcare.
Academia & Government (A&G), with the flagship product Web of Science (WoS), is essentially Google for academia, takes care of indexing millions of papers and provides citation data for them. It is essentially required by every university in the world, as both the university and their members performance is evaluated using a citation index metrics.
The industry is essentially a duopoly, with rival Scopus from Elsevier being perceived as the largest index, whereas Web of Science is seen as more selective, and therefore being published in a journal indexed by WoS is seen as more prestigious in the eyes of many.
The Intellectual Property (IP) segment sells patent data, as well as patent lifecycle management software, to law firms, patent offices and corporations. The industry is an oligopoly, where Clarivate is the market leader has a slightly larger market share than Questel (Orbit Intelligence), and together they own an estimated 25% to 35% of the market.
The Life Sciences and Healthcare (LS&H) segment is the smallest of the three, accounting for only 11% of operating income, and operates in a more crowded market. Cortellis sells early R&D data and operates early in a drug lifecycle, before a drug is approved, and DRG sells commercialization and market access data, after a drug is available on the market. They do not appear to have any particular advantages over IQVIA, Norstella, or Veeva Systems, and both their margins and their retention rates are lower than in the other two segments where they’re market leaders. They’ve just announced a sale of the segment for $600M, which is expected to complete at the end of the year.
The company was born when the two original private equity sponsors, BPEA and Onex, teamed up to buy the Intellectual Property & Science division from Thomson Reuters in 2016, and took the company public in 2019 via a SPAC.
The business started a long list of mergers and acquisitions fueled by debt and equity roll-up, and If you had bought $1000 of Clarivate stock in October 2020 you would have $67 today.
The two private equity sponsors have almost entirely left the business, Onex still carries a 6% stake and BPEA exited entirely.
Notable shareholders today are Leonard Green & Partners (18%, received equity via the CPA Global acquisition), Exor (10%, started accumulating on the open market at $7/share,, doubled down in the $4-$5/share range) and Andrew Snyder / Cambridge Information Group (4%, received equity via the ProQuest acquisition).
ProQuest management has essentially taken over the wheel, as Snyder is chairman of the board and Matti Shem Tov, the former ProQuest CEO, is now the CEO. Simon Webster, the former CEO of CPA Global, has been appointed President of the IP segment.
They’ve committed to pay off the debt accumulated during the M&A era, and I believe there’s a real alignment with the shareholders here as they’ve received an equity stake that’s now deeply underwater.
To this end, they’ve announced and executed a sale of the LS&H segment for $600M, which along with the expected $365M of cash flow (low-point of guidance) should allow them to comfortably pay off the debt. When accounting for the CFO mental gymnastics, the transaction should see $35M of one-time transaction fees, and a permanent loss of only $30M/year in free cash flow moving forward, since the loss revenue would be partially offset by CapEx and interest expense saved. I think that’s a fair exchange, because in this situation they’re now they're essentially selling $30M of cash flow from their worst segment at a 18.8x multiple. If they hit their low-point of guidance with the two remaining segments they’ll be on track to pay off the two debt walls coming in 2028 and 2029, significantly reducing their net debt from the current $4.1B to $2.3B, to a manageable 2.5x net debt/EBITDA ratio.
Paying off the debt will keep transferring equity from the bondholders to the shareholders, and I’m expecting that as the Enterprise Value numerator shrinks the market will re-rate the stock.
Risks:
AI: two guys vibecode a competitor in the A&G or IP segments and sell it to the largest universities, corporations and law firms in the world.
I think the risk is unfounded, because Clarivate heavily curates their data in both the A&G and the IP segments. In the A&G segment in particular there’s an arms race against the “paper mills”: businesses that publish poor quality, when not outright fake, scientific papers, and sell authorship to these papers to boost the performance of a dishonest academic. The phenomenon started in the early 2000s, but it’s easy to imagine how LLMs made it worse.
Clarivate employs hundreds of researchers to review the journals they index and to assess their quality, and journals that stop meeting their quality criteria are put on hold and re-evaluated.
They’ve used AI to aid this process since 2023, but the final decisions are still made by human experts. You might be able to build a citation index, but replicating their review process is nearly impossible for an incumbent.
Pretty much the same can be said of the IP segment: The Derwent World Patent Index takes care of translating foreign patents into English, and it curates and provides enhanced abstracts, re-written by subject matter experts to strip away the “legalese” and explain exactly what a patent is for.
In both cases, I think the business can benefit from AI greatly.
Decaying organic growth: Academias and governments world-wide are under pressure to cut costs. IP is also under pressure and decaying -1.7%, and management attributes it to the fact that’s a more cyclical business. Nevertheless they’ve fired Maroun Mourad, the president of the IP segment, after just 10 months on the job. The new president, Simon Webster, is a veteran from CPA Global, and we’ll need to monitor the performance and see if they can return to organic growth.
Another risk to the thesis is a take-private at depressed prices. I don’t think Exor or CIG would be interested in that, but LGP might need to sell of their stake as they originally acquired CPA Global in 2017, and the fund is approaching the end date by which they’ll need to return the capital to the shareholders. However, Exor has the right to accumulate up to 17.5% of the shares. Clarivate has been mentioned in the 2023 and the 2024 Exor shareholders letter, and John Elkann has been radio-silent about it in the 2025 shareholders letter. Hard to say whether this means loss conviction, but it’s worth noting they haven’t sold a single share since then.