By Christina Lee, Ryan Horlick, and Britney Cheng (University of Michigan), Nihat Anwar, Hannah Ohlsson, and Wilma Tillqvist (Stockholm School of Economics)
Overview of the deal
Acquirer: S&P Global
Target: IHS Markit
Implied Equity Value: $44 billion
Total Transaction Size: $39.2 (-$4.8 billion net debt)
Closed date: Expected: Second half of 2021
Transaction advisor(s): Goldman, Sachs & Co. LLC (lead), Citi, Credit Suisse to S&P Global
Morgan Stanley & Co. LLC (lead), Barclays, Jefferies LLC, and J.P. Morgan Securities LLC to IHS Markit
On November 29th, S&P Global and IHS Markit announced that they had entered into a definitive merger agreement unanimously approved by both boards of directors. At $44 billion, this landmark deal would be the largest all-stock deal of 2020, combining two of the largest providers of data to Wall Street. Under the terms of the merger agreement, IHS Markit shareholders will receive a fixed ratio of .2838 shares of S&P Global stock for each IHS share, while S&P Global shareholders will own approximately 67.75% of the combined company.
The merger is highly complementary, as it is in line with S&P’s goal of building out its data and subscription services. For example, IHS Markit’s tracking of transportation and energy data can be paired with S&P Global’s commodities business, Platts, helping to expand service mix and market intelligence to a wide range outside of just financial services. If approved, this combination of one of the oldest names in the financial market with a relative newcomer will point to the new wave of market intelligence and the immense growth and demand for market data.
"This announcement is an important milestone in bringing together our two world-class organizations to power the markets of the future. As a combined company, we will provide customers the intelligence they need to make decisions with conviction while providing growth and development opportunities for our people." Douglas Peterson, President and Chief Executive Officer of S&P Global.
“We believe this combined leadership team reflects the strengths of both organizations and brings the right skills, expertise and experience as we work to drive long-term growth and shareholder value while continuing to deliver for our customers." Lance Uggla, Chairman and Chief Executive Officer of IHS Markit
Company Details: Acquirer - S&P Global
S&P Global Inc. is an American publicly traded corporation in New York City that primarily works in financial information and analytics. S&P puts emphasis on delivering data, research, credit ratings, benchmarks and ESG solutions that governments, companies, and individuals utilize to make daily decisions.
Founded in 1917, headquartered in New York, USA
CEO: Douglas L. Peterson
Number of employees: 23,000 (2019)
Market Cap: $77.88bn as of 17/12/2020
EV: $79.4bn as of 17/12/2020
LTM Revenue: $7.31bn
LTM EBITDA: $4.05bn
LTM EV/Revenue: 10.86x
LTM EV/EBITDA: 21.31x
Company Details: Target - IHS Markit
IHS Markit Ltd is an American-British information provider that has been headquartered in London since the 2016 merger of IHS Inc. and Markit Ltd. IHS Markit prides itself on its analysts, data scientists, financial experts and industry specialists who make use of global information to aid numerous industries, primarily including finance, energy, and transportation.
Founded in 1959, headquartered in London, England
CEO: Lance Uggla
Number of employees: 15,500
Market Cap: $37.53bn as of 17/12/2020
EV: $42.71bn as of 17/12/2020
LTM Revenue: $4.3bn
LTM EBITDA: $1.41bn
LTM EV/Revenue: 9.93x
LTM EV/EBITDA: 24.05x
Projections and Assumptions
This combination of two world-class and powerful organizations with unique market-leading technology and cutting-edge innovation is expected to augment growth and further boost value creation in the near future. The deal will create favourable synergies and a robust data and information juggernaut, and S&P Global hopes to utilize the partnership to cement its position as a leading global market data provider. Following the announcement of this major transaction, the market reacted favourably – IHS Markit’s stock rose 7% to $99.40, while shares in S&P Global jumped 2.2% to slightly over $349.
The combined company is expected to maintain a strong balance sheet and have an extraordinary financial outlook with attractive profitability and immediate high growth. In total, the combination of the two companies will generate a pro forma annual revenue of more than $11.6bn. S&P Global also expects annual cost savings of $480m in addition to $350m of cross-selling opportunities. Of the annual cost savings, $390m are expected to be realized by the end of the second year post closing. According to IHS Markit CEO, Lance Uggla, the pro forma company is expected to achieve 6.5% to 8% in organic revenue growth in 2022 and 2023, and the synergies will promptly lead to accelerated growth and generate 76 % recurring revenue balanced across crucial industry segments.
The appetite for financial data is growing, as the use of data-intensive products is becoming more popular in search of better returns. The strategic rationale for the merger includes increased scale and complementary product portfolios. The transaction would provide a broader spread of products in other sectors where the companies’ data and analytics could be brought together. The combined entity would provide differentiated solutions important to the workflows of many of the world’s leading companies, as well as reach an expanded customer base. This could be achieved by the combined entity’s enhanced customer value proposition. Moreover, the combined entity will become a significant player in financial information, an increasingly competitive market, and be better positioned to compete with Bloomberg for a larger share of financial data services.
The combined company could create strong offerings in high-growth adjacencies including ESG, climate and energy transition. The transportation segment is another interesting segment for the future as the industry is expected to depend upon much data and data analytics going forward, where the combined entity might have a crucial role.
Through this acquisition, S&P Global will add more analytical services to data access packages. Furthermore, analysts believe that the deal will impact EBITDA by $680 million in synergies by the fifth year after closing and both companies forecast increasing EBITDA margins by 2 % annually.
Risks and Uncertainties
As the largest corporate acquisition of 2020 so far, this mega-deal carries risks related to its size. The deal represents over half of S&P Global’s market capitalization and includes $4.8 billion of net debt, which the pro forma company will have to carry on its balance sheet for the foreseeable future.
Additionally, the deal still has yet to be approved by antitrust regulators and both companies’ shareholders. This complex deal will create a powerhouse company in the competitive and shrinking financial information industry. As a result, the companies may face trouble when attempting to gain regulatory approval from both the US and EU, which is expected to take over six months. Similarly, LSE’s deal with Refinitiv in August of 2019 has continued to face regulatory scrutiny and S&P’s deal may experience the same. S&P’s and IHS Markit’s products are highly complementary and this acquisition should be beneficial to the customers and shareholders of both companies. Therefore, the deal should easily gain approval from a shareholder standpoint.
Another risk is the response from competitors, such as Refinitiv, Bloomberg, and FactSet. In the financial information space, the amount of data that companies have is a large determinant of success. S&P and IHS Markit’s competitors may also feel inclined to pursue industry-consolidating acquisitions, creating an even more competitive landscape in the near future.
“Our highly complementary products will deliver a broader set of offerings across multiple verticals for the benefit of our customers, employees and shareholders” - Lance Uggla, chairman and chief executive of IHS Markit