Morningstar has agreed to purchase DBRS, a Canadian credit ratings firm, for $669 million as it seeks to compete against the biggest credit raters in the industry.
DBRS, the fourth-largest credit ratings agency globally, has been operating under the ownership of private equity firms Carlyle Group and Warburg Pincus, according to a statement Wednesday from Morningstar. Toronto-based DBRS was bought by Carlyle and Warburg in 2015 for undisclosed terms.
The deal will help Morningstar take on the three major credit raters — S&P Global, Moody’s Investors Service, and Fitch — as it expands its business of identifying credit risks for institutional investors. The Chicago-based investment research firm moved into credit ratings in late 2009.
“The chance to empower investors with the independent research and opinions they need across a multitude of securities first drove our decision to enter the credit ratings business,” Kunal Kapoor, Morningstar’s chief executive officer, said in the statement.
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Morningstar’s credit ratings and analysis business covers asset-backed securities, commercial and residential real estate securities, and corporate and financial institutions, according to its website.
“We estimate a total addressable market of $8 billion in global credit ratings, which has grown at a compounded annual growth rate of approximately 7 percent over the past 10 years,” Kapoor said in a letter to Morningstar employees and shareholders on the agreement to buy DBRS.
Morningstar had made a much smaller acquisition than DBRS to expand its credit rating offerings soon after entering the business.
The firm bought Realpoint, a credit rater focused on commercial mortgage-backed securities, for $52 million in cash and stock in 2010. The following year, the Horsham, Pennsylvania-based business was rebranded under the Morningstar name.
DBRS rates more than 2,400 “issuer families” and nearly 50,000 securities globally, according to the Morningstar statement. The Canadian firm, which founded in 1976, produced $167 million in revenue for the twelve months through November.
“DBRS’s more than 40 years of experience and success coupled with Morningstar’s proven capabilities will offer an even stronger global alternative to larger ratings agencies,” Stephen Joynt, CEO of DBRS, said in the statement.