Turnaround at Harris capped off in sale to Nielsen

Contact: Scott Denne

Harris Interactive has lost revenue, added a few new products and made only subtle changes to its income statement since launching a turnaround effort in 2011. Despite few changes, the stock is up dramatically since then, and today it found a buyer in Nielsen, which plans to purchase the polling and market research firm for about $117m.

Harris Interactive’s stock, which at one point was close to being delisted, is up 2.5 times since bringing on new management in June 2011. Its revenue has declined to $140m, from $164m in 2011. The main change at the company has been to interest investors in its stock, which it has done by posting predictable results, slowing the pace of declining revenue (some of the decline came from getting rid of its lowest-margin services) and trimming expenses just enough to tip it back to profitability.

Although losing money, the company was able to shift its operating profile enough to become profitable, but hardly the sort of changes one would expect given the growth in its stock price. As a percentage of revenue, the cost of services ticked down slightly to 62% last quarter from 66% before its most recent turnaround effort began, and its sales and administrative expenses dropped just three percentage points to 31%. It posted $1.3m in profit last quarter, its fifth consecutive quarter of profitability.

While management was successful in more than doubling Harris’ share price, the shrinking company was never going to find a stellar exit. That’s apparent in Nielsen’s $2-per-share offer, which comes in slightly below recent closing prices for Harris’ shares. On an enterprise value basis, the deal values Harris at 0.7x trailing sales and 9.1x trailing EBITDA. When the turnaround began, Harris was valued at less than 0.3x trailing sales.

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