The wooing of RiskMetrics, the New York-listed risk management and corporate governance firm, is over and the winner is MSCI, the index provider and owner of Barra, which announced is purchase offer for RiskMetrics at a 17% premium over Friday’s close. As we noted in January, Riskmetrics put itself up for sale, with rumored suitors being strategic buyers such as Thomson Reuters, McGraw-Hill (which had previously almost bought Riskmetrics before it went public) and Bloomberg.
MSCI is paying approximately $1.55 billion in a cash and stock transaction that values RiskMetrics at $21.75 per share. RiskMetrics last traded at $18.69 and its highest ever share price was $25.50 during 2008. MSCI’s offer, which is subject to approval by shareholders of RiskMetrics, consists of $16.35 in cash and 0.1802 shares of MSCI per share of RiskMetrics. The combined company would have approximately $750m of revenues and 2,000 employees across 20 countries.
The deal enhances MSCI’s Barra analytics, broadening out the risk analytics to cover more than just equities. It also provides diversification through RiskMetrics’ ownership of ISS, the world’s biggest proxy voting agency, which covers around 40,000 corporate annual general meetings every year.
RiskMetrics has been an active purchaser of alternative research, focusing primarily on ESG and forensic research, over the last few years. In November 2009, RiskMetrics finalized the $10m buy-out of Boston-based KLD Research & Analytics, which also gave it a foothold in the SRI index business via deals with FTSE and Canada’s Jantzi Sustainalytics. That came after a February, 2009, $16m buy-out of Toronto-based Innovest, another ESG research provider. RiskMetrics purchased CFRA, the forensic research specialist, in July 2007 for $63 million.
Since the immediate priorities will be integration, it is unlikely that MSCI will be continuing RiskMetric’s alternative research acquisition binge. MSCI head, Henry Fernandez, cited the complementary nature of the acquisition: “This deal marks a significant milestone in our effort to become the leading provider of investment decision support tools. The combined scale, complementary product capabilities and clients and extensive geographic footprint of MSCI and RiskMetrics will drive significant cost-saving synergies and revenue opportunities.”
The sale of RiskMetrics was most likely triggered by the private equity firms, General Atlantic Partners, Technology Crossover Ventures and Spectrum Equity, which own 46% of the firm. MSCI said it expected the deal to close in its third fiscal quarter of 2010 with the transaction financed by existing cash and proceeds of debt. MSCI has received a commitment letter from Morgan Stanley, the US bank, for debt facilities aggregating up to $1.375bn to fund the cash portion of the acquisition.