Industry Reactions to Markit-IHS Merger

Press releases tend to be filled with plenty of hyperbole thanks to PR teams looking at every word in an announcement as another opportunity to highlight why the news is so important. That's why at first glance labeling the Markit-IHS merger as the creation of a "global information powerhouse" might seem like a bit of an exaggeration.

However, facts are facts, and the new merged company, renamed IHS Markit, is valued at more than $13 billion, according to closing prices of IHS and Markit common stock on March 18, 2016.

But what will be the impact of two firms mergering that seem to operate in entirely different markets? WatersTechnology reached out to those in the industry on both the buy and sell side to get a feel for what the newly-formed IHS Markit means for the space.

Potential for Benefits

Reaction to the news has been varied, with most taking a cautiously optimistic view. A CTO at a US-based hedge fund that is a client of Markit seems indifferent about the announcement.

"Yeah we've been following the story," the source says. "We are clients of Markit, but don't really see much changing for us as a result of this."

Another CTO of a US-based hedge fund sees a bit more potential in the deal. IHS specializes in insight, analysis and expertise in the automotive, aerospace and energy markets, among others. There is practically no overlap between the two firms ─ Markit's bread and butter is in the market data space, also offering indexes and credit default swap and fixed-income pricing, among other things ─ and for that reason the CTO believes the deal could be good for both sides.

"I have always held Markit in high esteem and it seems like being acquired won't be too disruptive to the org structure," the source says. "If that is the case, this deal might be a rare example of something truly good for both sides. ... Complementary is probably the best way to put it ─ that way they don't have to fight over whose product survives."

Not Close Enough

Everyone in the market doesn't see the lack of overlap as a benefit, though. One source says that while there are tax advantages to the merger, the deal doesn't make sense from the pure business side of things.

"IHS has basically no footprint on Wall Street, and only minimal data that would be of interest to Wall Street if it was able to make inroads," the source says. "Similarly, I doubt any of Markit's clients are really that interested in IHS analyst reports, at least not enough to move the revenue needle."

Markit declined to be interviewed for this story, but cited its investor presentation, which includes examples of the benefits of the combination of the two firms.

Culture is Key

The source also points to the leadership as a potential hiccup to the deal. IHS chairman and CEO Jerre Stead will take over as chairman and CEO of IHS Markit until his retirement at the end of 2017. Lance Uggla, chairman and CEO at Markit, will be handed the reins following Stead's departure.

The difference in the two CEOs backgrounds is noticeable. Unlike Stead, Uggla has spent his entire career in financial services, working at CIBC World Markets and TD Securities, before joining Markit in 2003.

"So, for the next year-and-a-half until the IHS CEO retires, you've got a CEO in place that doesn't have a background in capital markets running the show," the source says. "No doubt Uggla will still be steering the Markit ship, but still, you can't help but wonder what the combined management team is going to do with two very different businesses."

A CTO at a US-based prop shop echoed similar sentiments. While the source says the deal looks like a good idea at first glance, the issue of bringing together cultures is one that looms over every deal of this size.

"The problem with most of these mergers is trying to integrate the cultures of both companies and create an integrated product line," the CTO says. "I've seen a number of technology mergers that did not work out well because of internal turf battles. As a result the product integration failed or took much longer than expected."

The Bottom Line

Most of the people interviewed for this story believed that as long as the culture issues are ironed out and the internal turf wars don't spin out of control, the deal seems like a good idea with both sides benefiting. After all, this appears to be more of a complimentary merger.

Markit has proven itself as one of the more respected and wide-reaching vendors in the space, both through internal growth and through acquisition. In addition to the market data and indexes businesses, the company provides market and credit risk solutions through its Markit Analytics platform; order management and portfolio management services through thinkFolio; transaction-cost analysis with its Markit TCA tool; enterprise data management via Markit EDM; regulatory support for know-your-customer rules through KYC.com and KY3P; as well as corporate actions and reference data solutions, and several other solutions that run the gambit.

For the capital markets space, though, Markit and CEO Lance Uggla will have to continue to prove they are focused and dedicated on these solutions, even as the corporate structure and product offering expands.

WatersTechnology US Editor Anthony Malakian contributed to this story.