Why Morningstar Is Buying Sustainalytics

By Amit Chowdhry ● April 21, 2020
  • Morningstar, Inc. (NASDAQ: MORN) — a leading provider of independent investment research —  announced it has reached an agreement to buy Sustainalytics

Morningstar, Inc. (NASDAQ: MORN) — a leading provider of independent investment research —  announced it has reached an agreement to buy Sustainalytics. Sustainalytics is a globally recognized leader in environmental, social, and governance (ESG) ratings and research. Currently, Morningstar owns approximately 40% of Sustainalytics (first acquired in 2017) and will purchase the remaining approximate 60% of Sustainalytics shares upon closing of the transaction.

This transaction includes a cash payment at closing of approximately EUR 55 million (subject to certain potential adjustments) and additional cash payments in 2021 and 2022 based on a multiple of Sustainalytics’ 2020 and 2021 fiscal year revenues.

Based on the upfront consideration, Morningstar estimates the enterprise value of Sustainalytics to be EUR 170 million. And the closing of the transaction is subject to customary closing conditions and is expected to occur early in the third quarter of 2020.

For over 25 years, Sustainalytics has been ahead of the curve, recognizing the need to provide ESG solutions to investors, banks, and companies worldwide. And the company is widely known for its security-level ESG Risk Ratings – which are integrated into institutional investment processes and underpin numerous indexes and sustainable investment products – as well as serving an ever-increasing number of use cases across the emerging sustainable finance landscape. Plus Sustainalytics offers data on 40,000 companies worldwide and ratings on 20,000 companies and on 172 countries.

Morningstar and Sustainalytics have been teaming up to supply investors around the world with new analytics, including the industry’s first sustainability rating for funds, rooted in Sustainalytics’ company-level ESG ratings, a global sustainability index family, and a large span of sustainable portfolio analytics that includes carbon metrics and controversial product involvement data.

Through this acquisition, Morningstar plans to continue to invest in Sustainalytics’ existing business while also further integrating ESG data and insights across Morningstar’s existing research and solutions for all segments, including individual investors, advisors, private equity firms, asset managers and owners, plan sponsors, and credit issuers.

Key Quotes:

“Modern investors in public and private markets are demanding ESG data, research, ratings, and solutions in order to make informed, meaningful investing decisions. From climate change to supply-chain practices, the nature of the investment process is evolving and shining a spotlight on demand for stakeholder capitalism. Whether assessing the durability of a company’s economic moat or the stability of its credit rating, this is the future of long-term investing. By coming together, Morningstar and Sustainalytics will fast track our ability to put independent, sustainable investing analytics at every level – from a single security through to a portfolio view – in the hands of all investors. Morningstar helped democratize investing, and we will do even more to extend Sustainalytics’ mission of contributing to a more just and sustainable global economy.”

-Morningstar Chief Executive Officer Kunal Kapoor

“Sustainalytics welcomes the opportunity to join the Morningstar family. Our collaboration over the past several years has helped to extend the understanding and use of ESG insights and strategies to a multitude of investors, advisors, asset owners and managers across the globe. This new ownership structure will amplify our ability to bring meaningful ESG insights, products, and services to the global investment community and to companies around the world. Importantly, I am thrilled that my colleagues and I are joining a firm with a belief in our mission and intent to help us further expand our reach.” 

-Sustainalytics Chief Executive Officer Michael Jantzi