Big data is fetching a bigger price tag.
McGraw Hill Financial Inc. agreed to buy SNL Financial LC for $2.2 billion in cash in a deal announced Monday, nearly five times what the financial data provider was worth four years ago when private-equity firm New Mountain Capital LLC purchased a 60% stake.
New York-based McGraw Hill outmaneuvered a handful of media and financial-data companies in its pursuit of the Charlottesville, Va.-based SNL, according to people familiar with the matter. The pursuers included Hearst Corp., which has a majority ownership stake in bond grader Fitch Ratings, as well as financial data provider FactSet Research Systems Inc., according to a person familiar with the matter. A Hearst spokesman declined to comment. A FactSet spokeswoman didn't immediately respond to a request for comment.
Investors weren't pleased with the multiple McGraw Hill agreed to pay, driving shares down 5.67%, or $5.99, to $99.59.
One analyst, Timothy McHugh with William Blair & Co., said the price for SNL "is probably a little high," in a Monday note to investors. But another, William Bird of FBR Capital Markets & Co., said "the stock reaction seems exaggerated." Mr. Bird estimated the multiple paid by McGraw Hill was more than 43 times SNL's 2015 earnings before interest, taxes, depreciation and amortization of about $51 million.
McGraw Hill Chief Financial Officer Jack Callahan acknowledged SNL "was certainly not cheap" but said his company's sales staff outside of the U.S. could help broaden SNL's reach faster. "If you look forward," he said, "the multiple becomes more into a more reasonable range you'd expect."
McGraw Hill's tie up with SNL caps a string of pricey deals for data-driven companies as the market for firms selling obscure financial intelligence on banks, commodities and real estate attracts a bigger audience and entrenched firms look to expand.
Carlyle Group LP and other investors last year agreed to acquire Dealogic, a financial data provider, for about $700 million. In March, a consortium led by Carlyle and Warburg Pincus LLC bought ratings firm DBRS Ltd. for more than $500 million based, in part, on the promise of its ability to sell financial intelligence to banks and other investors.
More transactions are expected as other firms rush to meet the data demand. Financial-data and transactions giants First Data Corp. and SunGard recently filed for initial public offerings, and SunGard has had s uitors express interest in an acquisition, The Wall Street Journal has reported. TransUnion, the credit bureau, is up 10% since its IPO debut last month.
"There's an increasing demand for data, research and analytics in the financial and corporate markets," said Douglas Peterson, McGraw Hill's CEO and a former Citigroup Inc. executive, in an interview.
New York-based McGraw Hill, the owner of Standard & Poor's Ratings Services, went after SNL as part of a larger effort to shed its origins as a publishing company and become a global financial data provider. Its portfolio of businesses includes commodities pricing and stock indexes.
SNL, founded in 1987, compiles data using automation to sift through documents from various public sources and government agencies. It employs roughly 3,300 employees in 19 offices.
It is best known as a provider of in-depth banking industry data and analysis, but more than a third of SNL's revenue comes from nonbanking areas that include energy, insurance and real estate. Since 2012, SNL has aggressively expanded into metals and mining; it tracks production data of 80,000 mines in 60 different countries, as well as 9,000 power plants. These newer business lines should turn a profit by 2017.
"We've developed a pretty efficient machine for both gathering and selling information," said Mike Chinn, SNL's chief executive officer, who will stay on through the acquisition and report directly to Mr. Peterson.
"How you collect that information is the same whether it's a bank branch or a coal mine or a power plant," Mr. Chinn added.
The deal for SNL, which includes no debt, is expected to close by the end of September. The move should eventually generate tax benefits of about $550 million over the next 15 years, and add $70 million in savings by 2019, the company said.
Separately, McGraw Hill on Monday reported that second-quarter profit grew to $353 million, or $1.28 a share, from $292 million, or $1.06 a share, a year earlier. Excluding special items, per-share earnings from continuing operations were $1.21 a share.
That topped expectations of analysts polled by Thomson Reuters, which had forecast $1.13 a share in earnings.
In recent years, McGraw Hill sold off divisions producing textbooks, trade publications and magazines. Senior executives often lead off investor presentations by emphasizing that McGraw Hill is more than just its S&P ratings unit.
Other ratings rivals are also jumping into the financial-data game. Moody's Corp. now generates around one-third of its overall revenue from a financial-data unit called Moody's Analytics. Fitch Ratings also has a fast-growing division dedicated to market data.
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