- S&P Global Inc (NYSE: SPGI) and IHS Markit Ltd (NYSE: INFO) announced they have entered into a definitive merger agreement to combine in an all-stock transaction that values IHS Markit at an enterprise value of $44 billion
Today S&P Global Inc (NYSE: SPGI) and IHS Markit Ltd (NYSE: INFO) announced they have entered into a definitive merger agreement to combine in an all-stock transaction that values IHS Markit at an enterprise value of $44 billion, including $4.8 billion of net debt. And the transaction brings together a unique portfolio of highly complementary assets in attractive markets and cutting-edge innovation and technology capability to accelerate growth and enhance value creation. This is considered one of the largest M&A deals of 2020.
Deal Terms
Under the terms of the merger agreement — which was unanimously approved by the Boards of Directors of both companies — each share of IHS Markit common stock will be exchanged for a fixed ratio of 0.2838 shares of S&P Global common stock. And upon completion of the transaction, current S&P Global shareholders will own approximately 67.75% of the combined company on a fully diluted basis while IHS Markit shareholders will own approximately 32.25%.
S&P Global and IHS Markit’s unique and highly complementary assets will utilize cutting-edge innovation and technology capability (including Kensho and the IHS Markit Data Lake) to enhance the customer value proposition and provide the intelligence customers need to make decisions with conviction. And serving a global customer base across financial information and services, ratings, indices, commodities and energy, and transportation and engineering, the pro forma company will provide differentiated solutions important to the workflows of many of the world’s leading companies.
Combined, the two companies will provide comprehensive solutions across data, platforms, benchmarks and analytics in ESG, climate and energy transition. Douglas Peterson, President and Chief Executive Officer of S&P Global, will serve as CEO of the combined company. And Lance Uggla, Chairman and Chief Executive Officer of IHS Markit, will stay on as a special advisor to the company for one year following closing.
Strategic Rationale
Why are the two companies combining? In the announcement, the companies listed the following reasons: 1.) greater scale and business mix 2.) creates strong offerings in high-growth adjacencies 3.) increased customer value proposition 4.) best-in-class talent 5.) financial benefits 6.) increased profitability 7.) attractive synergy opportunities and earnings accretion 8.) maintains strong balance sheet to pursue further growth and 9.) enhanced free cash flow generation to support attractive capital return
In terms of the financials, the pro forma company will have 76% recurring revenue and expects to realize 6.5-8.0% annual organic revenue growth in 2022 and 2023, balanced across major industry segments. And the combined company will target 200 basis points of annual EBITA margin expansion. The deal is expected to be accretive to earnings by the end of the second full year post-closing and the combined company expects to deliver annual run-rate cost synergies of approximately $480 million — with approximately $390 million of those expected by the end of the second year post-closing and $350 million in run-rate revenue synergies for an expected total run-rate EBITA impact of approximately $680 million by the end of the fifth full year after closing.
The combined company is expected to maintain a strong balance sheet and credit profile with pro forma annual revenue of more than $11.6 billion and S&P Global intends to maintain a prudent and flexible capital structure and will target leverage of 2.0-2.5x EBITA, on an agency-adjusted basis. And the combined company expects to generate annual free cash flow exceeding $5 billion by 2023 with a targeted dividend payout ratio of 20-30% of adjusted diluted EPS and a targeted total capital return of at least 85% of free cash flow between dividends and share repurchases. Both of the companies expect to maintain their current dividend policies until the close of the transaction.
Management And Board
Upon the closing of the deal, the company will be headquartered in New York with a substantial presence in key global markets across North America, Latin America, EMEA, and Asia Pacific.
The combined company’s Board of Directors will include the current S&P Global Board of Directors and four directors from the IHS Markit Board. Richard Thornburgh, current Chairman of S&P Global will serve as Chairman of the combined company. And the leadership team will comprise senior leaders from both organizations. Ewout Steenbergen, Executive Vice President and Chief Financial Officer of S&P Global, will serve as Chief Financial Officer of the combined company.
The transition and integration of the combined company will be led by executives from both S&P Global and IHS Markit. And the approach to integration planning will draw from the best practices of both companies to ensure continuity for customers, employees, and other stakeholders.
The deal is expected to close in the second half of 2021, subject to customary closing conditions. And the transaction requires the approval of shareholders of both S&P Global and IHS Markit and is not subject to any financing conditions.
Goldman Sachs is serving as lead financial advisor to S&P Global. Citi and Credit Suisse are serving as financial advisors to S&P Global. And Wachtell, Lipton, Rosen & Katz is serving as legal advisor to S&P Global.
Morgan Stanley & Co. LLC is serving as the lead financial advisor to IHS Markit. Barclays, Jefferies, and J.P. Morgan Securities LLC are also serving as financial advisors to IHS Markit. And Davis Polk & Wardwell LLP is serving as legal advisor to IHS Markit.
KEY QUOTES:
“Through this exciting combination, we are able to better serve our markets and customers by creating new value and insights. This merger increases scale while rounding out our combined capabilities, and accelerates and amplifies our ability to deliver customers the essential intelligence needed to make decisions with conviction. We are confident that the strengths of S&P Global and IHS Markit will enable meaningful growth and create attractive value for all stakeholders. We have been impressed by the IHS Markit team and look forward to welcoming the talented IHS Markit employees to S&P Global.”
— Douglas Peterson, President and Chief Executive Officer of S&P Global
“This transaction is a win for both IHS Markit and S&P Global as we leverage our respective strengths in information, data science, research and benchmarks. Our highly complementary products will deliver a broader set of offerings across multiple verticals for the benefit of our customers, employees and shareholders. Our cultures are well aligned, and the combined company will provide greater career opportunities for employees. We look forward to bringing together our teams to realize the potential of this combination.”
— Lance Uggla, Chairman and Chief Executive Officer of IHS Markit
