S&P Global/IHS Markit: data plan
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Even after the pandemic comes to an end, your boss may yet cancel the annual Vegas convention junket or superfluous trip to see the branch office in Tokyo. But will subscriptions to data providers really make the chopping block? Wall Street does not think so. Shares of two players, S&P Global and IHS Markit, have rallied sharply since their respective lows in March. Prices are up between 78 and 100 per cent.
On Monday, S&P confirmed that it would snatch IHS Markit in an all-stock acquisition at an enterprise value of $44bn — the latest in a frenzied consolidation among information services companies. Shrinkage in the market should concern both customers and regulators.
The data business can be a juicy one. S&P — whose units include credit ratings, financial markets data, Platts energy data and its famed indices — has an operating margin of 56 per cent. Data revenue tends to be sticky in the form of subscriptions. Any investment analyst with a data terminal will tell you that switching costs can be high.
IHS is a less profitable business, though its ebitda margin is still a healthy 40 per cent. In addition to securities pricing in the Markit unit, it sells oil and gas data as well as information on automobiles and auto components. During the course of 2020, organic growth fell sharply in the auto business. Low oil prices and consolidation among drillers has hurt IHS’s energy business.
The two companies, in addition to cross-selling opportunities, estimate they can slash about a fifth of their combined overhead costs — at the cost of competition. Refinitiv, the former Thomson Reuters financial data service, has passed from Blackstone to the London Stock Exchange. ICE, another stock market group, bought Ellie Mae and Interactive Data Corporation together at a price of more than $15bn. Bloomberg remains private, controlled by the former New York City mayor and estimated to be worth more than $50bn.
Wall Street houses and hedge funds are not the most sympathetic consumers. But the rapid creation of data supergroups should raise the alert levels of competition regulators around the world.
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