Morningstar Continues Buying Spree with C.P.M.S.


New York, NY – Last week, Morningstar Research Inc., the Canadian subsidiary of Chicago-based mutual fund research company Morningstar, Inc., entered into a definitive agreement to acquire the equity research and data business of C.P.M.S. Computerized Portfolio Management Services Inc., a privately owned independent equity research and data firm in Toronto, for C$16.1 million (a little more than $13.3 million in U.S. dollars). This marks the seventh acquisition in the past twelve months for Chicago-based research firm, Morningstar.

Background on C.P.M.S.

Founded in 1984, C.P.M.S. tracks fundamental equity data for approximately 4,000 securities in the United States and Canada, as well as collects brokerage earnings estimates for Canadian equities.  The firm is considered a high quality analytics and data provider for Canadian buy-side investors, serving hundreds of institutional money managers, pension funds, endowment managers, and investment advisors in the U.S. and Canada.

C.P.M.S.’ flagship software platform, the Equity Market Service, fully integrates fundamental and expected earnings data to generate a wide range of applications such as stock, industry, and market analysis; construction of long and short strategies with its proprietary ranking and screening system; stock and portfolio sensitivity analysis; and portfolio analytics. Its Backtest service incorporates real-time fundamental and expected earnings data for developing and back-testing investment strategies and style analysis, as well as developing custom benchmarks.  The Backtest service also permits industry and market behavior analysis.

C.P.M.S.’ equity research and data business also includes eight distinct quantitatively driven model portfolios covering value, growth, income generating, momentum, and short-selling investment styles for the U.S. and Canadian equity markets.  C.P.M.S.’ equity research and data business has more than 500 clients throughout the United States and Canada. It has about 40 employees in Toronto.

The acquisition of C.P.M.S. equity research and data business would enable Morningstar to better serve the Canadian investment management industry by integrating one of the leading databases and suite of investment models and analytic tools into its global product offering.

Buying Spree Continues

The purchase of C.P.M.S.’s research and data business marks the seventh acquisition that Chicago-based Morningstar has closed in the past twelve months.  The other businesses that Morningstar has acquired include:

Global Reports LLC:  On April 20, 2009 Morningstar acquired the global financial filings database business of Global Reports LLC, a provider of online financial and corporate and social responsibility reports for publicly traded companies.  Global Reports is based in Maryland.  The terms of the deal were not disclosed.

InvestData Ltd:  On December 29 2008, Morningstar closed the acquisition of InvestData, Ltd, a leading provider of fund information in South Africa.  Terms of the deal were not disclosed. 

Tenfore Systems Ltd: On December 17, 2008 Morningstar acquired Tenfore Systems, Ltd, a UK provider of real-time market data and financial data workstations for approximately $19.2 million in cash. 

10-K Wizard Technology, LLC: On December 4, 2008 Morningstar purchased Dallas, Texas-based 10-K Wizard Technologies for $11.5 million.  10-K Wizard, founded in 1999, allows users to do full-text searches of SEC filings, along with tracking companies by variables such as ticker symbols or industry type.

Fundamental Data Ltd:  On October 2, 2008 Morningstar acquired Fundamental Data, Ltd., a leading provider of data on closed-end funds in the United Kingdom, for U.S. $18.6 million.      Fundamental Data covers all UK- and U.S.-domiciled closed-end funds as well as offshore and local closed-end funds worldwide.

Financial Computer Support, Inc.:
On September 2, 2008 Morningstar closed its acquisition of Maryland-based Financial Computer Support, Inc. (FCSI), a leading provider of practice management software for independent advisors for $4.9 million.  FCSI’s flagship product, dbCAMS+, is a portfolio management system that allows advisors to easily track and produce client reports as well as manage client contact information and billing.

Settlement’s End Will Hurt

Despite this slew of acquisitions, Morningstar will take a pretty significant revenue hit in 2009 and 2010 as the Global Research Analyst Settlement comes to an end in July 2009.  According to Morningstar’s 10-K filing:

“We also have significant revenue from the independent equity research we’re providing under the terms of the Global Analyst Research Settlement, which accounted for approximately 4% of our consolidated revenue and 20% of revenue in the Individual segment in 2008.

Based on the firm’s reported 2008 revenues of $502,457,000, this would mean the firm could stand to lose a little more than $20 million in annual Settlement revenues.  Morningstar, like many of the other independent research firms involved in the Settlement, are finding that most of the Settlement banks are unlikely to continue paying much, if anything to purchase additional independent research for their retail investor clients.    

Fortunately, Morningstar has been extremely proactive in trying to grow its business – both organically and via acquisition – to replace the loss of its settlement revenue.  Not only has it acquired a large number of firms, but it has also expanded its investment research business by rolling out a relatively new institutional equity research offering focused on its coverage of U.S. stocks and IPOs (

Consequently, the team at Integrity suspects that Morningstar will fare better than many of the other 60-70 independent research firms that participated in the Global Research Analyst Settlement, once the last payments for their independent research have been deposited.  However, we don’t think Morningstar will rest on its laurels.  Instead, we suspect the Chicago-based investment research firm will continue to be on the lookout for acquisitions that will help it grow its various business lines.


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