MSCI: We View the Burgiss Acquisition as Pricey but With a Lot of Strategic Merit

MSCI MSCI announced today that it will acquire the remaining 66% of The Burgiss Group that it does not currently own for a cash consideration of $697 million. Given MSCI already had a stake in the firm, the decision to buy the firm outright is not a big surprise. The growth of private markets has been a big theme across the industry, and MSCI’s decision to acquire Burgiss is a bet that the need for private markets data and analytics will continue to grow. Overall, we will maintain our wide moat rating and fair value estimate of $440 on MSCI’s shares.

Burgiss is expected to generate $90 million of revenue in 2023 and with midteens adjusted EBITDA margin, which suggests a valuation of about 12 times revenue and over 70 times adjusted EBITDA. While we acknowledge these multiples are high, Burgiss is a fast grower and the firm’s midteens adjusted EBITDA margins have significant room to grow, in our view. MSCI expects the deal to close in the fourth quarter of 2023. As a reminder, in January 2020, MSCI invested $190 million in Burgiss for a noncontrolling interest.

Burgiss is expected to increase revenue in the mid- to high teens in 2023 and management expects that it can accelerate growth to 20% in part due to revenue synergies. While we are often skeptical of growth acceleration from revenue synergies, this acceleration strikes as reasonable, and we view MSCI’s management team as very capable. We do see overlap in the two firm’s client bases and believe there are opportunities to leverage Burgiss across the firm’s other segments, including index construction, analytical tools, and ESG and climate data. In addition, unlike MSCI, Burgiss’ business is very U.S. centric.