S&P Global Leans in on Recurring Revenue in $44 Billion IHS Markit Deal

Brendan McDermid | Reuters
  • Recurring revenue will make up the bulk of rating agency S&P Global's business after the company acquires IHS Markit in a deal expected to be valued at $44 billion, S&P Global's CEO said Monday.
  • "We'll have 76% of our revenue after this will be recurring revenue, and the rating agency will shrink from about 45% to 30%," Doug Peterson said in a "Mad Money" interview.
  • Lance Uggla, CEO of IHS Markit, said he has little concern that the deal will be blocked over antirust concerns.

S&P Global is widely known as a rating agency, but the rating business is expected to make up a much smaller portion of the company's revenue after its big merger with IHS Markit.

In an acquisition announced Monday, S&P Global revealed it would buy IHS Markit in a deal valuing the former at $44 billion.

Doug Peterson, CEO of S&P Global, in a CNBC interview later Monday said while the public sees the company as a rating agency, the bulk of its revenue will come from recurring business.

"We'll have 76% of our revenue after this will be recurring revenue, and the rating agency will shrink from about 45% to 30%," he told "Mad Money" host Jim Cramer. "It's a repossession of the company in the highest growth areas of the financial markets."

S&P Global, whose stock rose 3% during the trading day, is valued by Wall Street at $84.6 billion. IHS Markit surged 7% to close with a market cap of $39.6 billion.

S&P Global brought in $6.7 billion of revenue in 2019, and revenue has grown more than 12% in the first three quarters of 2020. IHS Markit collected $4.4 billion of revenue in its 2019 fiscal year, and revenue figures have fallen in each quarter of its current fiscal year.

The mega-deal would be the largest corporate purchase of 2020, producing a giant in a growingly competitive financial information market when it closes potentially in the second half of 2021. S&P Global is best known for the debt ratings it produces for countries and companies. IHS Markit offers a range of pricing and reference data for financial assets and derivatives.

Lance Uggla, who founded and heads IHS Markit, told Cramer that he is confident the acquisition would be cleared by antitrust regulators.

"There is almost zero overlap. When we look across the whole $11.5 billion of revenue, I would say it's negligible," he said, appearing on "Mad Money" alongside Peterson. "Just in a couple of our benchmarks and products that we have in energy, but it's a very, very small amount. So, little to no overlap is how we would describe it."

Peterson will hold on to his roles as president and CEO of S&P Global after the merger is completed. Uggla plans to serve as a special advisor for one year.

— Reuters contributed to this report.

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