IHS and Markit announced this week they had merged, creating a $13 billion research and analytics company. According to details on the merger, IHS will now own about 57% of the combined company called IHS Markit, which will be headquartered in London. IHS valued Markit at about $5.9 billion.
We talked to members of our Spend Matters analyst team to get reactions on the merger. Lisa Reisman, CEO and co-founder of Spend Matters parent company Azul Partners and Executive Editor of MetalMiner, and Pierre Mitchell, chief research officer of Spend Matters, shared their take on the news.
What is your initial reaction to news of the IHS/Markit merger?
Lisa Reisman: I'm not surprised by the merger. I think there is a logical tendency for information providers serving the financial markets to integrate further with the "commercials" or corporations that underlie the physical demand for the products traded on exchanges. Markit provides the platforms for traders whereas IHS Global Insight provides research and market analysis.
The challenge, however — and this is the big one — involves the seamless integration of the two. The initial reports regarding the merger suggest the main synergy between the two firms involves cross-selling. That's hardly an earth-shattering mission. What would make this merger more interesting would be a strategic mission involving the integration of insight and analysis into an actual product — that remains the holy grail of all research firms, including ours.
Pierre Mitchell: The move is not surprising at all. If you look at this deal beyond the quest for inorganic growth when organic growth isn't enough, and the tax inversion and cost synergy aspect, there is certainly an implied attempt to step up the game to compete against the bigger players in the market. IHS will likely be taking a revenue hit with its energy clients. Many of these companies are in massive cash preservation mode, so such subscription-based data services are easy line items to cut, even if in the short- to medium-term.
Is this merger significant? Why or why not?
LR: Maybe it is in the sense that it is signaling to the market that these types of deals could make sense — companies like Platts and Argus Media are doing the same and other media players are undoubtedly looking at how to integrate more deeply beyond commodity risk management, hedging and trading.
But unfortunately, I think the bigger news story on this deal involves "inversion," the tax-saving strategy where a U.S. firm acquires a firm based outside the U.S. From our vantage point, although inversions may make financial sense, we'd expect to see a well-defined value proposition for the joint group of customers. This deal may leave them wondering what kinds of advantages they might expect to receive as a result of the deal.
PM: The merge is somewhat significant in that IHS Markit will be trying to “punch above its weight class” and try to compete against firms like Bloomberg and Thomson Reuters. IHS Markit will have almost the the same employee count as Bloomberg, but Bloomberg has nearly three times the revenues (partly because IHS Market has a higher touch model with thousands of analysts). And Thomson Reuters even bigger.
The challenge in this market is how to be broad and deep, which can be built through acquisition like IHS has done extensively, as well as integrated. Bloomberg succeeds well in part because of the integration that occurs within the Bloomberg Terminal, which makes it “sticky,” much to the chagrin of those who procure these terminals. The shift from holding company to operating company is not easy, and occurs in the software space, too, whether you're Infor or SAP. IHS has a technology platform called IHS Connect, which is a good start to such integration but frankly appears to serve more as an IHS customer portal into all the IHS products and services than a truly integrated intelligence platform. Still, it's a good start, especially given the daunting nature of the task.
What are the benefits to the merger? Are their any?
LR: As they say the devil is in the details. Previous media reports suggest the combined cost-savings won't amount to a whole lot — $125 million or so. The benefits would come if the two firms could identify ways to combine data and information into existing products (or platform).
PM: I use the examples of Bloomberg and Thomson Reuters mostly because they have one foot in the financial services industry, but also sell out into supply chain based industries. So, for IHS Markit, besides the promise of benefits to shareholders of cost synergies and tax avoidance, it's now crossing over to connect Markit's deep financial services support with IHS' broader industry coverage. But, industry — or spend category from a procurement perspective — is only one dimension. There is an entire spectrum of capabilities that starts with data aggregation/curation, monitoring, analysis and forecasting that transitions into tools, apps and real intelligence (not just data aggregation and cursory analytics). It's a massive market mashup that's occurring right now, but a compelling one. Just the supply chain risk management segment alone is over $2 billion based on multiple models we've run, so the broader supply-side market intelligence and analytics market is compelling indeed — and we've been spending some quality time advising a diverse range of providers in these markets how to consider their moves to truly help the supply chain practitioners who need these solutions.