Morningstar has reached a deal to acquire credit ratings agency for a purchase price of $669 million funded with a mix of cash and debt, which will include the placement of a new credit facility at closing.
By combining the world’s fourth-largest ratings agency with Morningstar Credit Ratings’ U.S. business, the company will be able to expand global asset class coverage and provide an enhanced platform for providing investors with leading fixed-income analysis and research.
Headquartered in Canada, DBRS has spread across the United States and Europe throughout the last 40 years. The company, which rates more than 2,400 issuer families and nearly 50,000 securities worldwide, was acquired in 2014 in a +$500 million deal led by the Carlyle Group and Warburg Pincus.
The credit ratings agency reported $167 million in revenue for the fiscal year ended November 30, 2018, which is to say that DBRS’s revenue would represent approximately 17% of Morningstar’s total revenue if it were to own it as of Dec. 31, 2018. Morningstar finds DBRS’s strong generation of cash flow to be consistent with Morningstar’s overall business.
Kunal Kapoor, Chief Executive Officer at Morningstar, commented:
“The chance to empower investors with the independent research and opinions they need across a multitude of securities first drove our decision to enter the credit ratings business. DBRS and Morningstar share research-centric cultures committed to rigor and independence. Together, we believe we can elevate the industry with the world’s first fintech ratings agency backed by state-of-the-art models, modern technology, and expert research teams that issuers and investors can count on to deliver transparent and independent ratings.”
Stephen Joynt, Chief Executive Officer at DBRS, said:
“DBRS’s more than 40 years of experience and success coupled with Morningstar’s proven capabilities will offer an even stronger global alternative to larger ratings agencies. Both DBRS and Morningstar are driven by similar core values that aim to bring more clarity, diversity, transparency, and responsiveness to the ratings process, which makes Morningstar a perfect fit for us.”
Morningstar’s credit rating activities are a long-term key product area and have since expanded to include residential mortgage-backed securities (RMBS), agency risk transfers, single-family rentals, asset-backed securities (ABS), collateralized loan obligations (CLOs), corporate securities, financial institutions and real estate investment trusts (REITs).
DBRS’s human resources, composed by more than 500 people spread across seven locations, will continue to be led by its existing management team. The $669 million deal is expected to be accretive to net income per share in the first fiscal year after completion with an estimated closing in the third quarter of 2019, subject to regulatory approval and customary closing conditions.