It’s been just two weeks since the name “McGraw Hill” disappeared from America’s corporate landscape after 128 years. But the newly branded S&P Global, the successor to McGraw Hill Financial, isn’t looking backward, its finance chief tells CFO.
Any retirement of such a long-lived identifier must be undertaken only after careful consideration, of course. For the parent of the also newly renamed S&P Global Ratings (formerly Standard & Poor’s Ratings Services), the change was the culmination of a three-year project to narrow its focus.
For CFO Jack Callahan, it was the second renaming of the company since he came aboard in December 2010. Shortly after selling its educational publishing division in 2013, McGraw-Hill Companies became McGraw Hill Financial, underscoring the fact that its flagship products were its ratings agency, stock market indices, and financial benchmarks and analytics business.
Also in 2013, McGraw Hill sold Aviation Week, the last of the periodicals from the company’s roots in the publishing industry. The following year, it offloaded its construction-industry analytics division. Then, last summer, what could be considered the last straw for the McGraw Hill name came when the company acquired financial news, data, and analysis provider SNL Financial.
“We were spending more time telling people that we weren’t [in the book and magazine business] anymore, that we weren’t the old McGraw Hill, than telling them what we were,” says Callahan. “We’re ever-more focused on the financial and commodity markets.” He added, “We’re sending a message that we’re not looking to divest anything more.”
The divestiture binge was wrapped up last month with an agreement to sell J.D. Power to XIO Group for $1.1 billion in cash. The company also has an agreement to sell its securities pricing business to Intercontinental Exchange Group.
In addition to the credit ratings business, the streamlined company includes S&P Global Market Intelligence, a recent combination of its existing S&P Capital IQ and the acquired SNL Financial; a 73% ownership position in S&P Dow Jones Indices, a joint venture with CME Group; and Platts, a provider of information and analyses on the energy and metals industries.
Following is an edited version of CFO’s conversation with Callahan, which took place after the company’s rebranding.
Did you provide any kind of financial analysis of the rebranding decision?
This wasn’t the most challenging branding decision we’ve faced, from a financial point of view. We’re not a consumer-facing company, so we’re not planning to spend much on advertising. We may do some online stuff later in the year.
It could save us some money. We may be able to get some efficiencies going forward from having a name that’s easier for the whole company to leverage. For example, we have too many websites, under a variety of brands. We’re using this as an opportunity to reduce the number of them.
The company has had a lot of M&A activity in recent years, both acquisitions and divestitures. What’s the overall strategy?
It’s about creating focus for our portfolio of businesses. Our goal was to have a set of businesses that provide essential intelligence to the capital and commodity markets. That [transition] started in 2011, when we sold a collection of TV stations.
Then why are you selling the securities pricing business?
That did fit pretty well in the space we want to serve. It’s just that we’re not a big player. We want to have leadership positions in what we do.
To what extent did you have to sell to your investors this strategy of selling off well-known brands like J.D. Power?
J.D. Power is a great business, so we took more time to make a determination about whether it fit than we did with the others. But while there are some [business-to-business] elements of it, it’s more about consumer-facing research. We didn’t see that type of data analytics as our core.
The nice thing about having such a good business and brand is that it attracted a good number of suitors, and we ended up with a pretty attractive sale price.
As for the reaction of investors, I don’t want to be cavalier about it, but for many of them the view was, “It’s about time.” Going back to the original decision we took in 2011 to separate McGraw-Hill Education from McGraw Hill Financial, some of them were a little frustrated with the uneven performance of the business and the lack of strategic alignment between the financial assets and the legacy education and publishing businesses.
There were activist investors who put out a white paper suggesting that we should have broken the company into four pieces. But we’ve exceeded their thesis about what the value of the company could be.
Being that the company is in the finance business, do you have to be a little extra savvy about finance than if you were the CFO of, say, a widget company?
When you give a financial update to a group of people who spend most of their day selling [widgets], it doesn’t take a lot of finance knowledge to look smart. When you get up in front of a roomful of credit analysts who know how to tear apart balance sheets and income statements and start talking to them about capital allocation, you’d better get in your game.
Aside from all the things that every CFO of a publicly held company has to do, what are the key aspects of your job?
I’ve led all the work around the portfolio. I spend a good amount of time working on growth ideas and, until recently, the pacing of the divestitures. I came into the CFO role from the strategy side because I wanted to be in a seat where I could help drive growth.
Right now I’m thinking through the issues for our new enterprise CIO, who we announced just a few days after the brand change, so that he has a good understanding of the things we’d like him to do. And there’s more to come, in terms of thinking about how to operate more as an operating company and less as a conglomerate.
I also spend a fair amount of time traveling and working with our international businesses. Our mix is about 60% U.S. business and 40% international, and we’d like to move that to 50-50 over the next few years. That may take some stepped-up investment.
And I think about capital allocation. We have a strong balance sheet with a lot of cash [$1.6 billion at the end of the first quarter], so what are we going to do with it? We have a strong commitment to dividends and dividend growth [the company has paid a dividend every year since 1937], and from time to time we’re pretty aggressive about repurchasing shares.
Balancing share repurchases with acquisitions is really how we’ve run the company over the last few years.
What trends in the financial markets are impacting the company’s business?
We’re well positioned to capitalize on several of them. For one, in the past few years there’s been a big shift from [investments in] managed funds to passive investments. The growth in [exchange-traded funds] has really accelerated that.
We’ve been very active in coming up with passive products — indices that [investment products can be] based off. There are a lot of different flavors of ETFs based on S&P 500 indices. You can get a dividend aristocrat, an S&P 500 Value [ETF], or an S&P 500 Growth [ETF]. The product set has gotten more sophisticated.
Also, there are significant debt maturities and continued bank deleveraging. That’s important for our debt-rating business, because we make money when debt is issued. If there’s a lot of debt that has to be refinanced, that’s a good indication we’re going to have sustained growth in that business.
And I think across all of our customer sets, given the speed at which things work today, there’s a need for more and faster data, delivered by more sophisticated analytical tools. So, particularly with respect to S&P Market Intelligence, we really benefit from that trend.
Our Platts business has really benefited from the globalization of and volatility in commodities, and that is continuing.