Analysis-AI fears temper interest as private equity firms weigh data company deals

By Milana Vinn, Amy-Jo Crowley and Echo Wang

NEW YORK, March 5 (Reuters) - Financial data provider FactSet caught the eye of Thoma Bravo and Hellman & Friedman in recent months, with both private equity firms running the numbers on a potential acquisition after AI disruption fears helped drive a 39% drop in its shares over the last six ‌months, three people familiar with the matter say.

The shares of competitor Morningstar and data research firm Gartner have similarly fallen by 27.6% and 29.5% since early September, also raising ‌investor interest in a potential sale in recent months, about a dozen bankers and investors said. But the sharp pullback in shares that make all three attractive takeover targets is also causing the private equity firms to reassess any potential deals, ​the people said, asking not to be named because the internal deliberations are private.

The selloff, which deepened after Anthropic released its latest upgrade to its Claude Cowork AI tool last month, is indiscriminately hitting big companies like Microsoft as well as accounting firms, law firms and data providers – regardless of their exposure to AI disruption. Investors worry that AI could replicate much of the advice and information they package and sell. Bankers say they can't accurately value a company if executives can't predict whether their business model will evolve with or get overtaken by AI.

FactSet, Thoma Bravo, and H&F declined to comment while Gartner didn't respond to ‌requests for comment.

Morningstar also declined to comment, but CEO Kunal Kapoor told ⁠shareholders in a recent letter that he believes the company is "well placed to benefit from the growth of AI."

WHERE IS THE MARKET GOING?

“Public market investors are trying to figure out where the world goes,” said Jordan Jacobs, co-founder of venture capital firm Radical Ventures. “AI is such a new technology, and the improvements in ⁠new application areas are so dramatic, and the new opportunities are happening so quickly, that it's very hard to predict things years in advance.”

Software and data companies like FactSet, which provide financial data to institutional investors and companies, are now trading at a sharp "AI discount" where they once traded at premiums. Their predictable subscription-based revenues and strong profit margins attracted investors and kept their valuations high relative to other blue-chip stocks.

FactSet's so-called enterprise-value-to-EBITDA ratio, a ​key ​measure of its worth, is now hovering around 12, down from 21 last August and 30 in 2022, ​according to data compiled by LSEG. The ratio measures its market value to ‌its earnings before interest, taxes, depreciation and amortization. Morningstar and Gartner are similarly trading at ratios of 12.6 and 14.8, down from about 20 and 23 a year ago.