The Biggest Deal of the Year
The acquisition highlights the increasing importance of financial data companies to financial markets around the world. S&P Global said the deal is scheduled to be completed in the second half of 2021 and represents the largest one in 2020, worth more than Nvidia’s proposed $40 billion acquisition of chipmaker ARM.
The new company will be based in New York, and the two firms agreed to reduce annual costs by around $480 million, suggesting possible layoffs. At the end of 2019, S&P had 22,500 staff around the world. After the deal is completed, Peterson will remain the Chief Executive and president of S&P Global, while Uggla will be the company’s special advisor for a year.
S&P Global has been looking for a deal that will provide a significant contribution to its revenue growth. The core business — rating agency — is expected to contribute significantly less to the S&P Global’s revenue.
To this end, the company’s Chief Executive Doug Peterson told CNBC he expects the majority of the revenue to come from the recurring business, even though the public views it as a rating firm.
“We’ll have 76% of our revenue after this will be recurring revenue, and the rating agency will shrink from about 45% to 30%,” Peterson said. “It’s a repossession of the company in the highest growth areas of the financial markets.”
S&P Global generated revenue of $6.7 billion last year, which has risen over 12% during the first three quarters this year. IHS Markit took $4.4 billion in revenues in 2019, however, this year, revenue has dropped in each quarter.
Lance Uggla, the founder and helm of IHS Market said he’s convinced the deal will get approval from antitrust regulators.
“There is almost zero overlap. When we look across the whole $11.5 billion of revenue, I would say it’s negligible,” Uggla said.
“Just in a couple of our benchmarks and products that we have in energy, but it’s a very, very small amount. So, little to no overlap is how we would describe it.”
Shares of S&P global climbed 3% within the day, taking the company’s market cap to $84.6 billion. On the other hand, shares IHS Markit soared 7% closing the session with a market value of $39.6 billion.
Potential Antitrust Hurdles
However, President-Elect Joe Biden and his allies indicated that antitrust enforcement might become more strict and that’s why the deal between S&P Global and IHS Markit might face tougher scrutiny from the Biden Administration.
The merger will produce the third-largest financial data company, combining S&P Global’s proficiency in delivering debt ratings to firms and companies with IHS Markit’s expertise in pricing and reference data for financial products and derivatives.
Competition between financial data firms is getting tougher as these companies are continually looking to improve and fulfil all requirements among financial professionals. The combined company will become a stronger competitor to Bloomberg and Refinitiv, the top two financial data providers in the world.
Market research company Burton Taylor said financial data providers collected $32 billion in revenues in 2019. Bloomberg accounted for the largest share in that market last year, 32.7%, while Refiniv, S&P Global and IHS Markit represented 21.4%, 6%, and 2%, respectively.
Still, the deal is expected to face certain challenges from antitrust regulators in both areas where the companies contend directly, as well as areas that involve their plans for the future.
“I think it’s going to run into really tough scrutiny in the Biden DOJ (Justice Department),” said Seth Bloom, president and founder of Bloom Strategic Counsel.
“It would have been better for them if they tried to do this last spring.”
S&P Global announced its acquisition of IHS Markit for $44 billion, the largest deal in 2020 that is expected to be completed in the second half of next year. After the merger is completed, S&P Global’s CEO Doug Peterson says he believes the largest part of the company’s revenue will come from its recurring business rather than its rating business.
However, some analysts believe that the deal might face tough scrutiny from antitrust regulators following Biden’s win in the election.
About the Author
Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.