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IHS and Markit Merger Set to Result in Large Scale Information Business

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The merger of IHS and Markit will create a large scale information provider working across the financial services, energy and transport markets, and taking advantage of cross selling opportunities within the companies’ combined customer base. What is less clear is the priority the merged company will give to financial data solutions, particularly Markit’s processing services and solutions.

The merger was disclosed yesterday and has been in the making since late last year after Markit missed out on the acquisition of Interactive Data, which went to Intercontinental Exchange. Lance Uggla, chair, CEO and founder of Markit, had talked to IHS a couple of years previously and after losing the bidding for Interactive Data returned to the negotiating table with Jerre Stead, IHS chair and CEO.

IHS was founded in 1959 and listed on the New York Stock Exchange in 2005. It provides information and analysis designed to support decision making across a broad range of sectors with revenue generation led by oil and gas, transportation, and technical information for product design, technology and economic risk industries. On a smaller scale it provides information to markets including banking, manufacturing, retail, insurance, telecoms and defence, where it publishes Jane’s military data.

The company’s provision for financial asset managers focuses on market analysis of capital intensive industries such as automotive, chemicals, aerospace and defence, energy, and life sciences, and includes data delivery systems and dedicated business intelligence platforms.

IHS will pay $5.5 billion for Markit in a deal that is expected to close in the second half of this year and will create an information powerhouse on a scale to challenge Bloomberg and Thomson Reuters.

The combined company will be called IHS Markit and will have a market value of more than $13 billion. Ownership will be split, with IHS shareholders owning about 57% of the company and Markit shareholders owning about 43%.

Headquarters will be in London, with some operations at IHS’s Englewood, Colorado base, and the company will initially be headed by Stead, who will be chairman of the board and CEO at IHS Markit. Uggla will be president and a member of the board of directors before assuming the role of chair and CEO when Stead retires at the end of 2017.

From a product perspective, the emphasis of the combined company is on data, bringing together IHS’s information sectors and analytics services with Markit’s financial data business.

Uggla says the merger makes sense for Markit, explaining: “Markit was founded 13 years ago. It has grown on the basis of working with customers to manage regulatory trends and reduce costs. The trends will stay the same, but customer demand for unique information continues to grow. IHS Markit we will be a leader in information services, combining datasets and using technology to deliver data in a way that makes it easier to access.”

As well as creating new datasets and delivering them to a wider audience, the companies note the potential cross-selling benefits of offering Markit’s KYC.com, Know Your Third Party (KY3P), CTI Tax Solutions and enterprise data management software to the IHS customer base, which has little overlap with the Markit customer base.

Despite this note on solutions, data remains the key focus with IHS Markit listing potential product developments as energy indices for use in the ETF market; data transformation that will create a vast data pool for industry applications and analysis; smart beta indices and factors that will use IHS’s industry, economic and risk data; and asset valuations across all sectors.

The merger is described by the companies as a merger of equals, which is pretty much the case in terms of leadership, but in most other respects it looks nothing like that. IHS reported 2015 revenue of $2.2 billion, while Markit reported $1.1 billion; IHS has 9,000 employees in 33 countries, while Markit has 4,200 in 13 countries; and IHS has over 46,000 customers, while Markit has 3,500. But when it comes to the combined company’s strength in financial markets, that will depend almost entirely on Markit. As Stead put it: “IHS has about 25 people selling into financial services markets, Markit has hundreds.”

Whatever the end game of the merger and its commitment to financial markets, the numbers are big. IHS Markit plans to cut costs by $125 million by 2019, create $100 million of new revenue opportunities in the same timeframe, and achieve recurring revenue of 85% of total revenue based on the use of a data subscription model.

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