Proxy advisory firm Institutional Shareholder Services (ISS) has been purchased by Genstar Capital. The business, which includes both ISS proxy research (which sells services to institutional investors) and ISS Corporate Solutions (which sells services to issuers related to ESG), was sold by the previous owner, Vestar Capital, for US$720 million.
Vestar Capital had purchased ISS from MSCI in 2014 for US$364 million. Even after taking into account the costs of acquisitions in the period since it was acquired by Vestar (see HERE, HERE, and HERE), this rate of return is not too shabby; quite private equity really.
MSCI had acquired ISS as part of the RiskMetrics Group acquisition in 2010 (see HERE).
ISS’ new owner has a reputation for acquiring mid-size US companies with significant growth potential. The growth potential may be realised organically via acquisition of top talent to build adjoining businesses, or acquisition of adjoining businesses.
ISS would appear to meet certain criteria for growth.
- It has a significant economic moat in the form of its international footprint of proxy advice for institutional investors that is not matched by other proxy advisers, plus a data-heavy engagement-light business model that provides for high margins relative to more “engaging” competitors.
- Its already high global market share has been enhanced by the global investment flows into indexed funds, which in the US (via mutual funds) are permitted to “automatically” adopt a proxy adviser’s recommendation.
- Some services to institutional investors are ripe for disruption from automation and cutting out investment banking “middle men”.
- ISS Corporate Services, which sells ESG solutions to issuers that leverages off the same data it sells to institutional investors, is still relatively immature, particularly outside of the US.
There are, of course, risks, as perceived conflicts of interest between sales of services to institutional investors and the corporate issuers they invest in invite threats of regulation (as is currently being considered in Australia – see HERE).
The announcement made by ISS regarding its latest sale can be found HERE.© Guerdon Associates 2020 Back to all articles