S&P Global Inc. has agreed to merge with London-based IHS Markit Ltd. in an all-stock transaction that will bring together two of Wall Street's biggest financial data providers.
The roughly $44 billion transaction, subject to regulatory review, would give the combined companies more scale in the race among financial market players such as S&P Global, Intercontinental Exchange Inc. and London Stock Exchange Group PLC to build out their data offerings.
New York-based S&P Global, the parent company of S&P Global Market Intelligence, has taken to the M&A markets over the past several years to do that, with IHS Markit representing its latest push. The deal's terms assign IHS Markit an enterprise value of $44 billion, including $4.8 billion of net debt. The deal is expected to close in the second half of 2021, the companies said in a Nov. 30 news release that confirmed an earlier media report of talks between the two companies.
"We looked at how could we leapfrog and accelerate and actually be transformative with providing data and analytics to our customers in all these spaces that we see as the fastest growth areas. We identified IHS Markit as a partner," said S&P Global President and CEO Douglas Peterson, who will lead the combined company, on a call with analysts. "Across the board, the opportunities are really fantastic."
Each IHS Markit common share will be exchanged for a fixed ratio of 0.2838 share of S&P Global common stock. Once the deal is closed, 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 expects to have about 76% recurring revenues with an annual organic revenue growth rate of 6.5% to 8% in 2022 and 2023 across major industry segments, if and when the deal is completed. The deal is expected to be accretive to earnings by the end of the second full year post-closing. The combined company is expected 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 earnings before interest, taxes, and amortization, or EBITA, impact of approximately $680 million by the end of the fifth full year after closing.
In addition, the combined company expects to generate annual free cash flow exceeding $5 billion by 2023, with a targeted dividend payout ratio of 20% to 30% of adjusted diluted EPS. S&P Global expects to return at least 85% of its free cash flow between dividends and share repurchases.
Peterson does not expect the cross-border deal for IHS Markit to face any regulatory issues "that can't be resolved, if they do come up," he said on the call.
S&P Global CFO Ewout Steenbergen will be CFO of the combined company. IHS Markit Chairman and CEO Lance Uggla will join S&P Global as a special adviser for one year following closing. The combined company's board 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.
Goldman Sachs & Co. LLC is serving as lead financial adviser, and Citi and Credit Suisse are also serving as financial advisers, to S&P Global. Wachtell Lipton Rosen & Katz is serving as the company's legal adviser. Morgan Stanley & Co. LLC is serving as lead financial adviser to IHS Markit. Barclays, Jefferies LLC and J.P. Morgan Securities LLC are also serving as financial advisers to the company, and Davis Polk & Wardwell LLP is serving as its legal adviser.