IHS Markit to Buy Ipreo, Sell Key Derivatives Unit

Ipreo, which has a large presence on the buy and sell sides, and particularly in the alternatives segment, will be snapped up by the company for $1.855 billion, executives said on a conference call with analysts early on May 21.

“The private markets and alternatives segment is very attractive to us, and it’s one where we’ve been investing organically,” said Lance Uggla, CEO of IHS Markit, on the call. “The acquisition of Ipreo significantly increases our presence in this space—there’s over $10 trillion of assets under management invested in alternatives, and the sector continues to show strong growth, expected to reach over $20 trillion by 2025. The market for workflow solutions in alternatives is significantly under-penetrated, as many firms are still tracking investments and valuations on spreadsheets.”

As such, Uggla continued, IHS Markit sees an “opportunity to standardize and automate in this industry, and Ipreo has a strong suite of solutions and leadership position to leverage.”

The acquisition, which is expected to close in the second half of 2018, pending regulatory approvals in the US and the UK, is being funded by committed bank financing. As a result, IHS Markit will be suspending its share buy-back scheme until the company’s leverage returns to a two-to-three-times band, CFO Todd Hyatt said.

In addition to repositioning IHS Markit to take advantage of market segments it sees as underserved, said Adam Kansler, executive vice president of financial markets at the compay, there were also areas where existing products could be enhanced through Ipreo data. These include IHS Markit’s pricing and reference data offerings, as well as its suite of loan services, and its order management system, thinkFolio.

MarkitSERV on the Block

While the acquisition of Ipreo continues a trend of multi-billion-dollar mergers and acquisition activity in the fintech sector—Blackstone, which is one of the private equity owners of Ipreo, recently announced its own acquisition of Thomson Reuters Financial and Risk, for instance, while Ion Investment Group published its offer letter for a $2 billion takeover of Fidessa on May 18—of significant importance was also IHS Markit’s intention to divest MarkitSERV.

Sometimes described as the nerve center of the post-trade market in derivatives, MarkitSERV handles 90,000 derivatives processing actions per day and is connected to over 2,500 buy-side firms and 100 dealers.

“We’ve had incoming calls over the past couple of months with respect to our derivatives processing business, and given our look at the derivatives processing piece of our financial services businesses, we saw the synergies with the other products are not substantive,” Uggla said on the analyst call. “I guess what we look at there is that these are businesses which will consolidate well with other assets in the marketplace and this is a good time to make that decision.”

While the derivatives post-trade market remains a competitive area, it has been subject to a certain degree of consolidation of late. NEX Group, which operates Traiana, TriOptima and other competitive services, for instance, announced its sale to the Chicago Mercantile Exchange Group in March, a deal that is expected to close by the end of the year.

The divestiture of MarkitSERV, which Uggla said would be a “competitive” process, is expected to conclude before the end of the fourth quarter.

Suitors for the MarkitSERV business could range from the enlarged CME Group through to Bloomberg, the Depository Trust and Clearing Corp., and other exchanges including the Intercontinental Exchange Group and Nasdaq.

“We believe due to industry dynamics that the long-term growth prospects for MarkitSERV are best served by combining it with other post-trade processing market participants,” Uggla said. “This decision was a difficult one, but one I feel is right for our people, our customers and the ongoing growth and development of the derivatives post-trade marketplace.”