What to know about S&P Global and IHS Markit deal?
Data giant S&P Global has agreed to buy IHS Markit in a deal worth $44 billion, in what will be the biggest merger of the year. The merger makes creates a heavyweight in the increasingly competitive financial information market and is expected to close in the second half of 2021, after anti-trust regulatory reviews. Here is what is investors should know.
The importance of big data in the financial markets has been growing, governed by information-hungry trading algorithms. In addition to the S&P Global – HIS merger, other data firm related mergers include the ongoing acquisition of Refinitiv by the London Stock Exchange.
What investors should know about S&P Global – HIS deal?
- S&P Global is a global provider of debt ratings to countries and companies, as well as data on capital and commodity markets. The company became a standalone business in 2011 when its then parent McGraw-Hill separated S&P from its education business.
- IHS Markit was formed in 2016 when IHS, whose businesses range from data on automotive and technology industries to publishing Jane’s Defence Weekly, bought Markit for around $6 billion. Markit was founded by former credit trader Uggla and provides a range of pricing and reference data for financial assets and derivatives.
- IHS has a market value of around $36.88 billion based on the stock’s last close on Friday, a Reuters calculation showed, with its share price up around 22% so far this year.
How is the merger structured?
- The mega-deal between two of the world’s largest data firms had been in the works for months. As part of the deal, which includes $4.8 billion of debt, each share of IHS Markit will be exchanged for a ratio of 0.2838 shares of S&P Global stock, the two companies said.
- S&P Global shareholders will own roughly 67.75% of the combined company and the rest will be held by IHS shareholders.
- The deal is expected to close in the second half of 2021 if it can pass reviews by antitrust regulators in both the US and the EU, who have been showing increasing interest in the sector given the scrutiny that the London Stock Exchange’s acquisition of Refinitiv attracted, especially from the European Union. S&P Global and IHS Markit said their businesses had very limited overlap, and that they expected they would have the necessary regulatory approvals to complete the deal in the second half of 2021.
- Goldman Sachs acted as lead adviser to S&P, while Morgan Stanley was leading the negotiations for IHS. Citi and Credit Suisse also worked with S&P, while Barclays, Jefferies, and JPMorgan helped IHS.
- Douglas Peterson, CEO of S&P Global, will lead the combined firm, while Uggla will be a special advisor for a year after the deal closes.
Why is the merger important?
The deal puts pressure on rivals such as Bloomberg LP, Intercontinental Exchange Inc, Factset Research Systems Inc, and Moody’s Corp to pursue similar moves. While not all of them provide the same financial data, most of them chase the same clients, from investment bankers and traders to corporate executives and treasurers.
The London Stock Exchange is in the final stage of trying to win clearance for its planned $27 billion acquisition of data provider Refinitiv, which has been through a long review process by the European Union’s competition commissioner. Refinitiv was carved out of Thomson Reuters by private equity giant Blackstone in 2018 when it bought a 55% stake in the business in its biggest bet since the 2008 financial crisis. Thomson Reuters, the parent company of Reuters News, retains a 45% holding in the business.
S&P Global is a distant No. 3 by annual revenue behind Bloomberg and Refinitiv, according to market research firm Burton-Taylor. While the acquisition of IHS Markit, the No. 8 player, would not change that ranking, it would accelerate S&P Global’s growth.
The deal will combine S&P Global’s credit ratings, market intelligence businesses, and stock and energy benchmarks with IHS Markit’s fixed income benchmarks and indices, bond pricing and reference data, and information on the natural resources, automotive and engineering sectors. It will enable the distribution of IHS Markit products and services to S&P Global’s 1 million desktop users.
The companies said the merger will generate annual free cash flow exceeding $5 billion by 2023, allowing them to invest more than $1 billion in technological advances.
How did the stock price move?
- S&P Global shares rose 1.7% to $347.41, giving the company a market capitalization of $84 billion while IHS shares rose nearly 6% in trading before the bell Monday after following the announcement.
- S&P Global shares were down 2% Thursday, closing trading at $326.61 while IHS Markit stock was also down 2.1% on Thursday, closing trading at $90.61.
Should you buy, hold, or sell the stocks?
The current consensus among 11 polled investment analysts is to buy stock in S&P Global Inc, according to CNN Money. The 7 analysts offering 12-month price forecasts for S&P Global Inc have a median target of 399.00, with a high estimate of 415.00 and a low estimate of 353.00. The median estimate represents a +22.24% increase from the last price of 326.40.
IHS Markit Limited
- The current consensus among 11 polled investment analysts is to hold stock in IHS Markit Ltd.
- The 8 analysts offering 12-month price forecasts for IHS Markit Ltd have a median target of 100.00, with a high estimate of 118.00 and a low estimate of 89.00. The median estimate represents a +10.42% increase from the last price of 90.56, according to CNN Money.