McGraw-Hill: The New Driver of J.D. Power

Westlake Village California March 8, 2005; Christopher Palmeri writing for business week online reported that the car-rating outfit has been purchased by McGraw-Hill, which aims to rev up an ongoing expansion and build on Power's influential name

After 37 years without taking a dime from outside investors, J.D. "Dave" Power III has decided to sell his information-services business to The McGraw-Hill Companies (MHP ), parent of BusinessWeek magazine and BusinessWeek Online. The 73-year-old statistician, whose name has become synonymous with automotive-quality rankings, shared the news with several hundred employees on Mar. 7 at his company's headquarters in Westlake Village, Calif. "It was a very emotional thing," Power says. Advertisement

Neither Power nor McGraw-Hill would disclose the purchase price. J.D. Power & Associates boasts annual revenues of approximately $167 million. Power owns the company, along with several key executives. The acquisition is expected to close in April.

GOING GLOBAL. An English major with a master's degree in business from the University of Pennsylvania, Power began his career doing market research for companies such as Ford (F ) and General Motors (GM ). Disillusioned with the way management often used his research to justify decisions they had already made, Power opened his own shop in 1968. Among his early clients was Toyota (TM ), which asked him to survey the forklift market.

J.D. Power & Associates is best known for its annual surveys of quality and customer satisfaction in the auto business. Power mails its surveys to thousands of recent car buyers every year, paying them a dollar apiece to fill out each questionnaire. His company then tallies the results, revealing the top manufacturers in several categories. Winners pay for the right to advertise the J.D. Power & Associates' seal of approval. The outfit also sells more specific data to companies and consults with them on how to improve their scores.

Power has been expanding internationally and into new industries, such as telecommunications, health care, and homebuilding (see BW, 11/22/04, "Expanding J.D.'s Power"). Power cited the cost of expansion as his reason for selling.

"EXCELLENT FIT." McGraw-Hill, with offices in 37 countries, is expected to help extend Power & Associates' reach. "We see a lot of opportunities to leverage McGraw-Hill's infrastructure," says Stephen Goodall, Power's president. Both Goodall and the company founder are expected to continue in management roles.

In a statement, Harold McGraw III, chairman, president, and CEO of McGraw-Hill, called the acquisition "an excellent fit" that "will enhance our growth prospects for our business-information plans."

McGraw-Hill's history dates back to 1888, when co-founder James H. McGraw purchased the American Journal of Railway Appliances. More recently, the $5 billion-a-year company has sold off advertising-dependent trade publications such as Modern Plastics and Data Communications in favor of less-cyclical businesses. J.D. Power follows that formula.

"GROWTH POTENTIAL." "More and more, the model has switched to subscription and market-information services," says company spokesman Steven Weiss.

Edward Atorino, a media analyst at Fulcrum Global Partners, says he doesn't see any immediate ties between Power and McGraw-Hill's other operations, which include credit-rating firm Standard & Poors and one of the nation's largest textbook publishers. Still, he says, "it's a good brand name with growth potential." Following the Mar. 7 announcement, McGraw-Hill shares declined 51 cents, to close at $95.40, just off its 52-week high.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau