IRI Seeks Partner With Capital, Technology

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Information Resources Inc. has hired two investment bankers to find a strategic partner to inject fresh capital into the market research company and provide it with needed technology.

Chicago-based IRI retained Hambrecht & Quist, San Francisco, and Salomon Bros., New York, to find a corporate investor that sources say could buy at least 25% of IRI.

The company also is working with longtime banker, Chicago's Harris Bank, to extend into 1995 a $50 million line of credit-about half of which IRI had tapped by the end of the second quarter. The line is slated to fall to $30 million after Dec. 31.

The efforts to bring in cash come as IRI continues a costly expansion in Europe to compete more directly with Nielsen Marketing Research, Northbrook, Ill., as well as recover from other recent financial setbacks.

IRI executives say they expected and prepared for a big cash outlay, given their aggressive European rollout plans. And they note they are considering stock and debt offerings as other ways of raising funds.

"Right now, while we are investing in [Europe], it's a drag," said Chairman-CEO Gian M. Fulgoni. "That's the price you pay."

But outsiders say the company must shore up its balance sheet quickly or risk further alienating investors, who have seen their IRI stock lose about 70% of its value in the past year.

Before IRI's stock began its free-fall-it's trading at about $14, down from a 52-week high of $44.75-the company could look to stock-based acquisitions to grow overseas. Now, those deals require cash.

Mr. Fulgoni said IRI is nearing the end of its push to bring its marketing research services to Europe. It already has rolled out in France, Germany, the Netherlands and Turkey and expects to complete entry into Sweden and Italy by yearend. That will leave only Spain for 1995, he said.

As expansion expenses slow, the company will resume positive cash flow in the fourth quarter-about the time it hopes to find a partner and renegotiate its credit line, executives say.

Among the factors contributing to IRI's cash flow problems:

Selling, general and administrative expenses soared 31% to $21.4 million in the first half, largely because of higher staff and marketing costs overseas.

Operating expenses grew, rising 24% to $151.8 million in the first half. Revenues rose 14% to $179.9 million.

The company recorded three one-time charges in its first two quarters.

It took a $1.4 million pretax charge when a planned merger with Asia-based SRG Holdings fell apart. It established a $5 million pretax litigation reserve to cover costs related to two shareholder lawsuits (one resolved in IRI's favor and one pending) alleging financial misrepresentation. Finally, it took an $11 million pretax charge to change the way it records some sources of revenue.

A change in booking revenue has slowed 1994's revenue stream, especially in Europe. IRI used to count 15% to 25% of a contract's expected revenue as soon as it signed a new customer. Now, revenues are recorded more evenly over the life of its contracts.

The company's transition to versions of its major software products that are compatible with Microsoft Corp.'s Windows system has gone more slowly than anticipated, creating another drag on revenue growth.

Such factors caught up with IRI's bottom line: The company lost $7.9 million, or 31 cents a share, in the first half. It expects a break-even third quarter and a return to profitability in the fourth. Poor earnings, in turn, drove down the company's stock-and apparently drove away at least one investor.

The company's largest institutional shareholder, Jennison Associates Capital Corp., New York, sold its 9.4% stake at the end of the first quarter.

Subsequently, however, Tiger Management Corp. picked up a 10.8% stake. Neither investor would comment.

As IRI plows ahead, a marquee-name partner may be just the ticket to get investors back on its bandwagon, analysts say.

"It's a chance for IRI to develop an alliance with a deep-pocketed partner," said Dirk Godsey, analyst with Hambrecht & Quist, which took IRI public in 1983.

IRI needs its own version of Nielsen's owner, Dun & Bradstreet Corp.-a wealthy parent to back it up in the fight between the two companies.

But IRI also needs a partner that can bring a high-tech advantage it lacks, said Mr. Fulgoni: an electronic network to handle the flow of information between its retail and manufacturing customers.

Given that objective, analysts believe an international telecommunications firm is the most likely investor.

Although none could name interested parties, several say companies such as IBM Corp., AT&T and MCI Communications Corp. would be good partners.

Mitsui & Co., Tokyo, which signed a joint-venture agreement with IRI in April, is another possible candidate, said analyst James D. Dougherty, Dean Witter Reyn-olds, New York.

Whoever signs on is likely to put $100 million to $150 million into IRI, sources say. At the current stock price, that would buy 27% to 40% of the company. But if IRI issues new shares to a partner-a common practice in such deals-that amount of money would buy a 21% to 29% stake.

IRI officials, who control about 7% of the stock, wouldn't comment on those figures, except to say they don't want to sell a majority stake in the company.

IRI has been approached by interested investors over the years, Mr. Fulgoni said, so it shouldn't have a problem attracting one now. With IRI's stock near its 52-week low, "it's a very attractive opportunity,"

he said.

Ms. Gallagher is an associate editor for Crain's Chicago Business.

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