New York – In a recent filing with the SEC, RiskMetrics Group—a provider of risk management and financial research products and services—has indicated that it is planning to issue an IPO. This announcement represents the latest stage in an aggressive expansion campaign that included the acquisition of two companies over the past year—Institutional Shareholder Services (ISS) and the Center for Financial Research and Analysis (CFRA). The filing does not state when the IPO will be released.
RiskMetrics acquired ISS and CFRA after many years of successful organic growth. According to an S-1 filing released on September 17, 2007, the firm’s revenues more than tripled between 2002 and 2006, growing from just under $30 million to over $100 million. Net income has also increased significantly, from a loss of $2.5 million in 2002 to a gain of $16 million in 2006.
Leveraging the success from its core business, RiskMetrics acquired both ISS and CFRA in the past year. ISS, a leading provider of governance research and proxy advisory services, was acquired in January. CFRA, a leading provider of forensic financial research and analysis, was acquired in August. As of September 2007, both firms have been operating under the RiskMetrics brand.
According to the recent S-1 filing, RiskMetrics “incurred significant indebtedness” in its purchase of CFRA and ISS. The firm borrowed $425 million to finance its acquisition of ISS, which it purchased for $533 million. 2006 revenues for ISS were $103 million, which represents a 5x revenue multiple on the acquisition. The firm also borrowed $15 million to help finance its acquisition CFRA, which we estimate had cost $60 million.
Through the proposed IPO, RiskMetrics now seeks more capital to grow both its core business of financial risk management and the new product lines that it acquired through the purchase of CFRA and ISS. The S-1 filing indicates that RiskMetrics plans to increase global sales capacity to promote its financial research products (acquired through CFRA) and corporate governance products (acquired through ISS). The S-1 filing also indicates that the firm may pursue new acquisitions in the future, though it does not indicate what types of acquisitions are on the radar, if any.
While RiskMetrics has many competitive advantages, the firm’s S-1 filing acknowledges a range of potential risks inherent in its growth strategy. One of the more significant risks is the potential loss of market share to competitors. The S-1 filing identifies a long list of competitors to RiskMetrics core business of market and credit risk management, and a short list of competitors to the proxy research and voting products that it acquired through the purchase of ISS. On the market and credit risk management front, key competitors include Bear Stearns’ Bear Measurisk unit, BlackRock Inc.’s BlackRock Solutions unit, DST Systems Inc., Fimalac S.A.’s Algorithmics unit, Moody Corporation’s KMV unit, MSCI Inc.’s Barra unit and SunGard Data Systems Inc. On the proxy research and voting front, key competitors include Broadridge, Glass, Lewis & Co., and Proxy Governance, Inc.
The S-1 filing does not mention any competitors to the financial research and analysis products that were acquired through the purchase of CFRA. However, Integrity’s own analysis shows that RiskMetrics faces a range of competitors on this front as well. According to a ResearchFocus report that was released in May 2007, there are currently nineteen firms that provide products comparable to the CFRA Accounting Lens, CFRA Legal Edge and CFRA Due Diligence services that are now offered through RiskMetrics.
While there is significant competition, RiskMetrics impressive growth record and ambitious expansion strategy could position the firm for continued growth.
A link to the S-1 is copied below: