S&P Puts $44 Billion on Wise ‘Big Is Better’ Wager

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If the world is going to end up with just a handful of gigantic global businesses serving its financial markets, the U.S. is clearly leading the race. The agreed combination of S&P Global Inc. and IHS Markit Ltd. stands to create a vast, international and diversified business — one that has strategic options to get even bigger through further acquisitions. It’s a transaction that has implications for the U.S. players in market infrastructure and for the capital markets more broadly.

S&P, with a market value of $82 billion, has agreed to a deal valuing IHS debt-free at $44 billion. The terms see IHS shareholders receive stock worth around $97 per share, a 4.7% premium to the closing value on Friday. While S&P is the larger party, the pair are casting this as a merger, hence the modest uplift, which would be much larger in a conventional takeover of the U.S.-listed, London-based group.

The strategic rationale and timing are easy to grasp. S&P is a well-known brand in indices. It gains enhanced data and analytics capabilities and broader distribution. IHS’s business may be able to grow faster with the benefit of S&P’s clout. Scale brings efficiencies: The duo is targeting $480 million of annual cost savings, with revenue synergies on top.

IHS bought Markit in 2016 and may now be at the limits of realizing the full benefits of that deal. S&P and IHS’s market enterprise valuations are both 21 times profit expected next year on the Ebitda measure. That probably made negotiations easier.

There are some worries for shareholders. One is whether regulators might stymie the tie-up. The other is the possibility a deal that makes sense on paper founders on the execution. An agile and robust IT system is critical to making a transaction like this deliver. The continuing involvement of IHS Chairman and Chief Executive Officer Lance Uggla appears critical. He’s staying on for a year as an advisor. Hopefully that will be long enough. For S&P, there’s the risk IHS gets a counterbid.

The deal comes as London Stock Exchange Group Plc’s $27 billion takeover of data provider Refinitiv continues to work its way through the antitrust process. That marked a pivot to North America after the collapse of LSE’s planned merger with Deutsche Boerse AG. Continental Europe appears to have missed its chance to create a truly global, diversified market infrastructure powerhouse. Bloomberg LP, the parent of Bloomberg News, competes with IHS Markit, S&P Global and Refinitiv in providing financial analytics and information.

This will not be the last word in consolidation. Assuming a smooth integration, the logical next step would be further diversification through M&A. Exchange provider CME Group Inc. already has a business partnership in indices with S&P. It looks a potential good fit. That in turn raises questions about how Intercontinental Exchange Inc. will respond to all this. Might it now also seek more scale, say by targeting a deal with a group such as MSCI Inc., notwithstanding that the index and analytics provider is valued more richly than ICE?

Either way, the market data business is getting bigger and the U.S.’s global role is matching the size and depths of its markets.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2020 Bloomberg L.P.

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