Deutsche Boerse to buy 80% of PE-backed ISS for $1.8 billion

The German stock exchange operator Deutsche Boerse  said on Tuesday it would acquire an 80% stake in Institutional Shareholder Services (ISS) for about $1.8 billion, the latest in a flurry of deals to sweep across the exchange industry.

It makes good on a promise by Deutsche Boerse Chief Executive Officer Theodor Weimer to grow through acquisitions after his bid to acquire the Milan stock exchange failed over the summer.

The deal also marks the latest example of an exchange bulking up its offerings by joining forces with a provider of data and analytics.

For ISS, best known for advising investors how to cast proxy votes at shareholder meetings to build long-term value, the deal is the fourth ownership change in a decade.

Current owner Genstar Capital bought the firm for $720 million in 2017 from Vestar Capital Partners. Vestar had bought the company for $364 million in 2014 from MSCI, which had owned the company since 2010.

The purchase by Deutsche Boerse of the majority stake values ISS at $2.3 billion. The corporate governance adviser’s current management and Genstar Capital will retain a stake of 20% in the business, the parties to the deal said in a statement.

It is the largest deal during Weimer’s tenure of nearly three years at the helm of Deutsche Boerse. He is due to present his new medium-term strategy to investors on Wednesday and has said that mergers and acquisitions would play a big role in the company’s future.

The stock exchange operator will take on an additional 1 billion euros ($1.2 billion) in debt to help fund the agreed deal, which it expects to close in the first half of 2021 subject to regulatory approvals.

The transaction was announced amid active deal making by stock exchanges as they seek to leverage their electronic trading platforms with analytics, in a redrawing of the market landscape that has also drawn the attention of regulators.

The most prominent such deal is London Stock Exchange’s $27-billion purchase of data provider Refinitiv, which is 45% owned by Thomson Reuters, parent company of Reuters News.

Deutsche Boerse said the purchase positioned it as a leading global provider of Environmental, Social and Governance (ESG) data and analytics that support ethical investment strategies.

“Together, ISS and Deutsche Boerse have complementary ingredients to become one of the globally leading ESG players of the future,” Theodor Weimer said in a statement.

ISS will remain autonomous within the group to ensure the independence of its data and research and ISS Chief Executive Gary Retelny will keep his job.

ISS and its main rival Glass Lewis, which advise institutional investors on how to vote on hot button corporate matters ranging from mergers to whom to seat on a board, have faced increasing pressure from lawmakers and regulators over the last years as U.S. corporations have accused them of wielding too much power.

Source: Reuters

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