Alpha-Centric ESG Research

Kyle Rudden

<ul>
<li>On 23 November, the International Organization of Securities Commissions (IOSCO) released a framework aimed at greater oversight and accountability of ESG ratings and data providers.</li>
<li>Generally, this is a positive for ESG investing. Implications for specific stocks, however, are still vague and depend on how regional regulators interpret and implement IOSCO's suggestions.</li>
<li>That said, one of IOSCO's concerns – conflicts of interest – could affect certain ESG ratings and data providers, especially those owned by the "Big Three" credit rating agencies.</li>
</ul>


On 23 November, the International Organization of Securities Commissions (IOSCO) released a framework aimed at greater oversight and accountability of ESG ratings and data providers.
Generally, this is a positive for ESG investing. Implications for specific stocks, however, are still vague and depend on how regional regulators interpret and implement IOSCO's suggestions.
That said, one of IOSCO's concerns – conflicts of interest – could affect certain ESG ratings and data providers, especially those owned by the "Big Three" credit rating agencies.


ESG Ratings and Data Providers Subject to Greater Oversight Under IOSCO Framework

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

New York-based <a href="https://www.smartkarma.com/entities/s-p-global-inc" target="_blank" data-smartkarma-citation="entities:9735:1" rel="noopener">S&amp;P Global Inc. (SPGI US)</a> has agreed to acquire London-based <a href="https://www.smartkarma.com/entities/ihs-markit-ltd" target="_blank" data-smartkarma-citation="entities:26496:1" rel="noopener">IHS Markit Ltd (INFO US)</a>, at an EV of $44.5 bn, including $4.8 bn of net debt.
<ul>
<li>The operation, advanced on 30 November by The Wall Street Journal, was later confirmed by the parties involved.</li>
<li>
All-stock deal: 0.2838 SPGI x 1 INFO.
<ul>
<li>equivalent to $96.94 per share of INFO upon announcement; this values the equity of INFO at $39.3 bn.</li>
<li>This represents 9.9x EV/ Forward Revenue, 22.8x EV/ Forward EBITDA and 32.8x P/Forward E.</li>
</ul>
</li>
<li>This deal is one of the biggest deals of the year in M&amp;A. It will have a huge impact in the financial sector: it will create a financial information giant capable of competing with Bloomberg and Refinitiv. Wall Street does not believe that the end of the coronavirus pandemic will cause subscriptions to data providers to plummet. Shares of S&amp;P Global and IHS Markit have risen between 78% and 100% from their respective lows in March.</li>
<li>The decline in the number of companies in the data market should be of concern to both customers and regulators. That said, management did not contemplate significant regulatory hurdles to the deal.</li>
</ul>
S&amp;P, whose businesses include credit rating, financial markets data, Platts energy data and its famous indices, has an operating margin of 56%. IHS Markit is less profitable, but its EBITDA margin is quite good, 40%.
Pro-forma M&amp;A model suggests acquisition may be accretive to EPS since as early as 2021.
I believe the deal should enhance SPGI's position as a proprietary data and solutions provider, while also reducing the company's sensitivity to Ratings.
<ul>
<li>The timing seems positive as Capital IQ consensus forecasts organic growth at IHS Market to accelerate in 2021 (6.8% revenue growth in 2121 and 6.3% in 2022), while SPGI faces a softer issuance outlook (3% revenue growth in 2021 and 5.8% in 2022, according to Capital IQ consensus).</li>
<li>Overall, while there is a strong strategic rationale behind the deal, there is also increased complexity which may weigh on SPGI.</li>
</ul>
The gross spread is currently 2.7% for a deal that it is highly likely to close. I recommend setting up the spread in the usual way.

New York-based S&amp;P Global Inc. (SPGI US) has agreed to acquire London-based IHS Markit Ltd (INFO US), at an EV of $44.5 bn, including $4.8 bn of net debt.

The operation, advanced on 30 November by The Wall Street Journal, was later confirmed by the parties involved.

All-stock deal: 0.2838 SPGI x 1 INFO.

equivalent to $96.94 per share of INFO upon announcement; this values the equity of INFO at $39.3 bn.
This represents 9.9x EV/ Forward Revenue, 22.8x EV/ Forward EBITDA and 32.8x P/Forward E.


This deal is one of the biggest deals of the year in M&amp;A. It will have a huge impact in the financial sector: it will create a financial information giant capable of competing with Bloomberg and Refinitiv. Wall Street does not believe that the end of the coronavirus pandemic will cause subscriptions to data providers to plummet. Shares of S&amp;P Global and IHS Markit have risen between 78% and 100% from their respective lows in March.
The decline in the number of companies in the data market should be of concern to both customers and regulators. That said, management did not contemplate significant regulatory hurdles to the deal.

S&amp;P, whose businesses include credit rating, financial markets data, Platts energy data and its famous indices, has an operating margin of 56%. IHS Markit is less profitable, but its EBITDA margin is quite good, 40%.
Pro-forma M&amp;A model suggests acquisition may be accretive to EPS since as early as 2021.
I believe the deal should enhance SPGI's position as a proprietary data and solutions provider, while also reducing the company's sensitivity to Ratings.

The timing seems positive as Capital IQ consensus forecasts organic growth at IHS Market to accelerate in 2021 (6.8% revenue growth in 2121 and 6.3% in 2022), while SPGI faces a softer issuance outlook (3% revenue growth in 2021 and 5.8% in 2022, according to Capital IQ consensus).
Overall, while there is a strong strategic rationale behind the deal, there is also increased complexity which may weigh on SPGI.

The gross spread is currently 2.7% for a deal that it is highly likely to close. I recommend setting up the spread in the usual way.

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>S&amp;P Global <a href="https://www.smartkarma.com/entities/s-p-global-inc" target="_blank" data-smartkarma-citation="entities:9735:1" rel="noopener">Mcgraw Hill Financial (SPGI US)</a> is offering USD44bn for <a href="https://www.smartkarma.com/entities/ihs-markit-ltd" target="_blank" data-smartkarma-citation="entities:26496:1" rel="noopener">IHS Markit Ltd (INFO US)</a>, in an all share deal, equivalent to 10x IHS revenues</li>
<li>The offer represents, in our view, M&amp;A with clear economies of scale in the data provider space that we estimate would create the largest player by revenue, bigger than Bloomberg, and provide big potential for cost synergies</li>
<li>We believe that there are three core hurdles to this M&amp;A deal; we see the revenue synergies as ambitious, that the premium offered to IHS's pre-offer market value seems modest and potential regulatory hurdles to the S&amp;P-IHS combination</li>
<li>In our view, this deal reflects that data providers are looking to protect their turf from other potential acquisitive “big data” players, as we see in earlier deals by exchanges ICE and LSE</li>
<li>On the back of synergy gains and market growth, we would recommend investors to go long SPGI; we believe that the cost synergies plus partial revenue synergies are deliverable</li>
<li>Key risks to the deal and our positive view include; A higher bid for IHS from a competitor to SPGI or another big data player in the exchange sector, for example; A major regulatory hurdle, in the form of a lengthy review on anti-competition grounds; The deal goes through, but the extraction of synergies is more modest than anticipated leading to limited returns uplift</li>
</ul>


S&amp;P Global Mcgraw Hill Financial (SPGI US) is offering USD44bn for IHS Markit Ltd (INFO US), in an all share deal, equivalent to 10x IHS revenues
The offer represents, in our view, M&amp;A with clear economies of scale in the data provider space that we estimate would create the largest player by revenue, bigger than Bloomberg, and provide big potential for cost synergies
We believe that there are three core hurdles to this M&amp;A deal; we see the revenue synergies as ambitious, that the premium offered to IHS's pre-offer market value seems modest and potential regulatory hurdles to the S&amp;P-IHS combination
In our view, this deal reflects that data providers are looking to protect their turf from other potential acquisitive “big data” players, as we see in earlier deals by exchanges ICE and LSE
On the back of synergy gains and market growth, we would recommend investors to go long SPGI; we believe that the cost synergies plus partial revenue synergies are deliverable
Key risks to the deal and our positive view include; A higher bid for IHS from a competitor to SPGI or another big data player in the exchange sector, for example; A major regulatory hurdle, in the form of a lengthy review on anti-competition grounds; The deal goes through, but the extraction of synergies is more modest than anticipated leading to limited returns uplift


S&P Global (NYSE SPGI) & IHS Markit (NYSE:INFO) – Challenges and Potential Big Data Deal Structure

United States

S&P Global Inc. provides clients with financial information services. The Company offers information regarding ratings, benchmarks, and analytics in the global capital and commodity markets. S&P Global operates worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

S&P Global (SPGI US)

ESG Ratings and Data Providers Subject to Greater Oversight Under IOSCO Framework

ESG ratings and data are largely unregulated, despite growing relevance to capital markets. That is why IOSCO decided it is time for greater...

Kyle Rudden

Financial Data Juggernaut

The deal should enhance SPGI's position as a proprietary data and solutions provider. Gross spread is currently 2.7%. I recommend setting up the...

Jesus Rodriguez Aguilar

S&P Global (NYSE SPGI) & IHS Markit (NYSE:INFO) – Challenges and Potential Big Data Deal Structure

In a climate of “big data” mergers, the rationale for the SPGI-IHS merger is strong, with a relatively low overlap on product offerings whilst...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)