Deutsche Börse Acquires Leading Governance, ESG Data and Analytics Provider ISS

By AIT News Desk On Nov 19, 2020

Deutsche Börse to acquire majority stake in Institutional Shareholder Services (ISS) in partnership with current management and Genstar Capital, based on an ISS valuation of USD 2,275 million (EUR 1,925 million) for 100%

Move positions Deutsche Börse as a leading global provider of ESG data and analytics

High complementarity of ISS’ data and research businesses with Deutsche Börse Group’s businesses along the entire value chain, creates additional growth opportunities on both sides

ISS remains autonomous within the Group to ensure independence of its data and research

Current CEO Gary Retelny continues to lead ISS

Deutsche Börse, Institutional Shareholder Services (ISS) and Genstar Capital announced that Deutsche Börse will acquire a majority share of approximately 80% in ISS, valuing ISS at USD 2,275 million (EUR 1,925 million) for 100% of the business (cash and debt free). Genstar Capital and current management will continue to hold a stake of approximately 20%. The transaction is expected to close in the first half of 2021 subject to customary closing conditions and regulatory approvals.

This partnership of a global market infrastructure provider with a leading corporate governance, ESG, data and analytics provider forms an excellent foundation to fully realise opportunities for future growth in ESG-based investing globally. With this transaction, Deutsche Börse strongly commits to one of the key megatrends in the industry that will fundamentally change the investment space over the coming years. ISS’ unique ESG and data expertise will allow Deutsche Börse to emerge as a leading global ESG data player.

ISS’ more than 4,000 clients include many of the world’s leading institutional investors who rely on ISS’ objective and impartial governance and ESG data and research, as well as public companies focused on ESG and governance risk mitigation as a shareholder value enhancing measure. This transaction will bring a strengthened capital structure to ISS and the ability to further accelerate organic and inorganic growth initiatives for the benefit of ISS’ clients while leveraging the infrastructure of Deutsche Börse and, in particular, its global index franchise. After the closing, ISS will continue to operate with the same editorial independence in its data and research organisation that is in place today. The current executive leadership team with CEO Gary Retelny will co-invest in the transaction and will also lead the business of ISS after the closing.

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The businesses of ISS and Deutsche Börse are highly complementary and offer the potential for revenue synergies along the Group’s entire value chain: the partnership of ISS with the leading index and analytics capabilities of Qontigo, which is also part of the Group, will open opportunities for ESG growth on both sides. Further linkages along the value chain include ISS’ data distribution, which will benefit from the leading position of the Group’s post-trading services provider Clearstream in the investment funds space. In total, revenue synergies are expected to result in EUR 15 million additional EBITDA by 2023. ISS brings unique access to the buyside with more than 2,000 asset managers, including the global top 10. Moreover, ISS’ strong footprint in the US complements well with Deutsche Börse’s leading position in Europe.

This transaction is the logical next step in Deutsche Börse’s pre-trade growth strategy. It complements last year’s creation of Qontigo, formed from the combination of the analytics capabilities of Axioma with Deutsche Börse’s existing STOXX and DAX index businesses. As a leading ESG-focused provider of high-quality data, analytics and insight, ISS has attractive growth rates. In 2020, ISS is expected to generate net revenue of more than USD 280 million (pro-forma IFRS) and an adjusted EBITDA margin of approximately 35% pre-transaction effects, which has further operating leverage potential. Net revenue of ISS is expected to grow organically at a rate of more than 5% on average per annum until 2023. Deutsche Börse will report ISS’ financial performance as a separate pre-trading segment within the Group.

Theodor Weimer, CEO of Deutsche Börse AG, commented on the acquisition of ISS: “ISS is a very successful company with a high reputation worldwide as a global market leader in providing data, analytics and insights to investors and companies as well as governance services. It is one of the leading ESG providers. Its ESG expertise and data capabilities perfectly link to Deutsche Börse’s business model along our entire value chain. Together, ISS and Deutsche Börse have complementary ingredients to become one of the globally leading ESG players of the future. We have been deeply impressed by the culture and the leadership team of ISS. We look forward to partnering with ISS and working together to support the company’s continued business growth and jointly drive forward Deutsche Börse’s strategy.”

Stephan Leithner, Member of the Executive Board of Deutsche Börse AG, responsible for the Pre- and Post-Trading businesses, added: “ISS combines an emphasis on global corporate governance with an increasing focus on a broader definition of ESG standards, where Europe currently plays a trendsetter role. In this sense, we see our future partnership as a perfect combination to drive innovation and deliver the best expertise for ISS’ traditional investor clients and Deutsche Börse’s financial intermediary clients. As a neutral market infrastructure provider, Deutsche Börse is a natural candidate to provide these kinds of services.”

Gary Retelny, ISS President and CEO, said: “Deutsche Börse’s market-leading brands and solutions align very well with ISS’ offerings within our governance, ESG, index and market intelligence businesses. We believe that the potential combination of ISS’ ESG data and STOXX’ indices will offer clients new, powerful and innovative solutions with unique data sets that meet their evolving investment needs. We at ISS look forward to partnering with Deutsche Börse, along with Genstar Capital, as we continue to build upon the success of our diversified businesses around the world. As we have for more than 35 years, we remain committed to ensuring the provision of the highest quality research, data, analytics, and insight to our clients globally.”

Genstar Capital Managing Director, Tony Salewski, said: “Gary and the ISS management team have built a market-leading data and governance platform through innovative product development and impactful acquisitions, and we appreciate the partnership we have had with them over the past three years. As we continue as investors in ISS, we are excited by the value that Deutsche Börse will bring and our shared commitment to further accelerate ISS’ growth.”