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News: MarkitSERV Hokey Cokey - Are They In or Out?

26 September 2018 | Bill Hodgson

Having reported that MarkitSERV was up for sale, it now appears that idea has been parked.  Hat tip to Virginie O'Shea it was announced on an earnings call that the the sale has been withdrawn.

Lance Uggla said: Now relative to MarkitSERV. We’ve decided the best financial and strategic outcome for IHS Markit at this time is to keep our MarkitSERV business. We completed a disciplined and comprehensive sales process with both strategic and private equity parties and could not reach agreement at a sufficient value for the asset with an ongoing acceptable commercial relationship. MarkitSERV has an integral part to play in the post trade industry consolidation that we expect to occur in the coming years and continues to be a valued strategic partner across the whole financial markets. We look forward to continuing to invest and build this business and we’ll take the lead in innovating and looking for opportunities to partner with industry and our customers.

Which is a surprising outcome in my opinion. Given the pressure to make processing OTC products simpler, the prospect of MarkitSERV expanding into new services, adopting DLT and supporting development of the CDM must surely be attractive to someone in the market. Maybe OTC Space should have made a bid....


More commentary from Lance:

So first off, I think in putting MarkitSERV up for sale, our belief is that the post trade derivatives processing arena should be consolidated. And there’s three or four strategic assets in the marketplace globally and we saw an opportunity for either private capital or one of the strategic to take the lead to do that consolidation. And we thought that in that we could sell MarkitSERV at a sufficient value level to participate properly in that consolidation. 

We didn’t find that strategic buyer or the private equity buyer that asked the value proposition that we wanted for our asset to minimize any dilution would be -- was possible to reach. And so, we thought about it in a very disciplined way and felt that the best way -- and even in the quarter, we had a 7% derivatives processing growth. So giving us more belief that our asset was at the kind of baseline after many years of declining revenues, we felt that we’re at a baseline and the asset value should represent both participation in a consolidation and to a fair value for the EBITDA that the asset generates. 

So in not achieving that, we decided to keep the asset. And therefore, what does that mean going forward? We don’t see ourselves being highly acquisitive within derivatives processing. But we do think we made a lot of statement to the marketplace that there’s opportunities for the strategic consolidation of certain assets. And if some of the strategic market participants which to discuss or participate in those types of activities, we’re going to be open to do that. But we’re also quite open to manage the asset. We’re a key strategic market participant. We have valued customer relationships and we’re -- we’ll be in a good position to continue to offer the services we do. 

The last piece was the commercial arrangements. Within the Financial Services structure of IHS Markit, we do have some analytic products around FRTB for one where the MarkitSERV product offering and our FRTB analytic offering come together where customers see that can better allow them to model out their risk factors to support those risk calculations.