Morningstar Advances Credit Ratings Business With DBRS Acquisition

The two companies share a vision for a credit ratings industry based on “independence, transparency, and responsiveness.”

Morningstar, a provider of independent investment research, announced plans on Wednesday to buy DBRS, the world’s fourth-largest credit ratings agency, for $669 million.

The combination of DBRS with Morningstar Credit Ratings’ U.S. business will expand global asset class coverage and provide an enhanced platform for providing investors with leading fixed-income analysis and research.

“We have a deep-seated admiration for the folks at DBRS, the culture that they’ve built and the impact that they’ve driven,” Morningstar chief executive officer Kunal Kapoor said in a video message.

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“Together, we think we are going to elevate the industry and bring a continued focus on independence, transparency, responsiveness and, of course, a long-term approach,” he said. “I look forward to writing this next chapter in Morningstar’s history.”

Kapoor called the acquisition a chance to “empower investors with the independent research and opinions they need across a multitude of securities,” which first drove Morningstar’s decision to enter the credit ratings business 10 years ago.

According to Kapoor, “DBRS and Morningstar share research-centric cultures committed to rigor and independence,” Kapoor explained. “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.”

DBRS officials share Kapoor’s enthusiasm for the acquisition. “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,” said DBRS Chief Executive Officer Stephen Joynt.

“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,” Joynt said.

Founded in 1976 in Canada, privately held DBRS has more than 500 people spread across seven locations (Toronto, New York, Stamford, Chicago, London, Frankfurt, and Madrid) and will continue to be led by its existing management team.

DBRS reported $167 million in revenue for the fiscal year ended November 30, 2018. On a preliminary pro forma basis, if Morningstar owned DBRS as of Dec. 31, 2018, revenue from credit ratings would have represented about 17% of Morningstar’s total revenue.

Morningstar intends to fund the transaction with a mix of cash and debt, which will include the placement of a new credit facility at closing. The transaction is expected to be accretive to net income per share in the first fiscal year after completion. It will close in the third quarter of 2019, subject to regulatory approval.

Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $210 billion in assets under advisement and management. The company has operations in 27 countries.

Morningstar intends to name a leader of the combined businesses by the time the deal closes.