S&P Plans to Acquire IHS Markit

We plan to lift our valuation of wide-moat IHS Markit INFO to around $99 per share from $73 after the company announced that wide-moat S&P Global SPGI has agreed to acquire it in an all-stock deal. Both firms’ boards of directors have unanimously approved the transaction, and IHS Markit shareholders stand to own just less than a third of the combined entity.

We believe the deal, valued at $44 billion, affords IHS Markit investors a modest premium despite our view that S&P’s shares were trading somewhat rich before the news ($276 fair value estimate for the acquirer). Our new valuation, about 35% higher than our prior fair value estimate, will be based on S&P shares’ current trading price, to reflect the market value of the consideration offered for IHS Markit. However, as our stand-alone valuation of the target remains near its prior level (likely to rise to $74 per share from $73 to reflect the time value of money, but otherwise unchanged) and considering our fair value estimate of S&P, we believe the deal offers holders of IHS Markit looking to stay in the combined entity a roughly 6% premium at the announced ratio. That premium is not far from their shares’ appreciation (off what we believe was an already-elevated level) after the transaction was announced.

The management teams expect the transaction to close in the second half of 2021. We anticipate the deal will be consummated as announced. We see little chance of an alternative suitor emerging, particularly considering the magnitude of the transaction, and similarly do not anticipate insurmountable regulatory pushback, though the incoming Biden administration’s antitrust team is still being formed and could require selective concessions in areas of overlap between the two firms’ financial services offerings.

IHS Markit is a collection of relatively wide moat data-driven businesses with a highly recurring revenue model. Its revenue consists of 41% financial services, 27% transportation, 21% resources, and 11% consolidated markets & solutions or CMS. IHS Markit’s unique data complements S&P Market Intelligence. IHS Markit’s indexes business, which includes iBoxx (fixed income) and iTraxx (credit default swap), expands on S&P Dow Jones Indices. IHS Markit’s resources business expands S&P Platts’ with additional price reporting (through IHS Markit’s OPIS benchmarks) as well as energy data and analytics.

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