S&P Global is set to acquire fellow research and data provider IHS Markit in a massive deal that could shake up the industry.
“Big picture, this is going to create one of the largest information services firms across a number of different industries,” said Jeff Silber, a senior analyst at BMO Capital Markets.
The all-stock acquisition values IHS, which is publicly traded, at $44 billion, according to the firms’ announcement on Monday. It’s the latest in a series of acquisitions in the research and data industry, and analysts say more deals are expected given the need for scale and the sheer number of players in the market.
“This is a deal-heavy industry,” Silber said. “We’ve never seen anything of this size, though.”
In the year and a half leading up to this transaction, S&P completed three deals. In March 2019, the company offloaded its advisory services to Goldman Sachs Asset Management. In December of that year, S&P acquired technology research and data firm, 451 Research. Just a month later, in January 2020, the firm bought the ESG ratings business from RobecoSAM. Terms from those deals were not disclosed.
IHS has also been acquisitive. In 2019, the firm bought Novation Analytics, a greenhouse gas emissions and vehicle energy efficiency data provider. For this reason, Silber, said the S&P deal was unexpected.
“When I saw the headline, I was surprised,” Silber said. “I did not think IHS was going to be selling itself. I thought it was going to be an acquirer.”
Still, he doesn’t expect a deal of this size to slow things down for S&P. “They’re always going to be acquisitive,” Silber said, adding that the likely reasoning behind the all-stock transaction was to keep cash on S&P’s balance sheet.
According to Jay Langan, a partner in Deloitte & Touche’s M&A transaction services division, the number of research and data providers has exploded in recent years, which is one reason for consolidation in the industry.
“There’s pressure on service providers from banks looking to cull their list of vendors,” Langan said, explaining that this is a part of cost-cutting measures at banks.
These relationships with banks, particularly those that involve recurring expenses, are a boon for business. According to an investor presentation, S&P and IHS combined will derive 76 percent of its revenue from recurring sources like subscriptions. This is an increase for S&P, which currently has 69 percent of its revenue recurring.
[II Deep Dive: Ultra-Low Interest Rates Are Driving Insurers Into the Arms of Private Equity]
According to Langan, natural buyers in the market are older brands trying to acquire the more modern services clients are looking for. This was not the case with S&P and IHS, both of which have been in operation (under different monikers) for decades.
Still, the deal is expected to be beneficial for the two firms.
“You’ll get some benefits of scale,” Silber said. “The combined company should be able to accelerate growth and increase profitability.”
