Data giant Thomson Reuters has agreed a deal to spin off its Financial & Risk business—the division that includes its financial content and technologies—to a consortium led by New York-based investment manager and private equity firm Blackstone Group.
Under the terms of the deal—which was approved by Thomson Reuters’ board earlier today, Tuesday January 30, and is expected to close in the second half of this year—the parties will create a new corporation comprising the Financial & Risk unit. Thomson Reuters will hold a 45 percent stake in this new business, with the remaining 55 percent owned by a consortium of Blackstone, the Canada Pension Plan Investment Board, and Singapore-based investment firm GIC, which manages the Singapore Government’s foreign reserves.
Thomson Reuters’ Financial & Risk division includes the vendor’s real-time market data feeds, terminals, market data distribution platforms and data infrastructure, reference data and evaluated pricing operations, indexes, trading platforms and front-ends, and risk management tools. In 2017, these businesses contributed $6 billion to Thomson Reuters’ overall revenues.
“The F&R division has tremendous assets, including a world-leading data business, essential risk and compliance solutions, OTC trading venues, wealth management software, and a strong desktop business. The partnership with Blackstone provides an opportunity to increase efficiency and accelerate revenue growth through innovation and focus on creating uniquely compelling products for F&R’s customers,” says Martin Brand, a senior managing director at Blackstone
The assets of the new corporation are valued at $20 billion, and Thomson Reuters expects to receive $17 billion in gross proceeds from the deal, which officials say it will use to pay down the vendor’s debt, pay taxes and costs associated with setting up the new company, repurchase shares, and to fund growth opportunities in its Legal and Tax & Accounting businesses, which are not part of the deal. The vendor will also retain ownership of its Reuters News service, but has agreed a 30 year deal to license Reuters’ news to the new entity, in return for a payment of at least $325 million per year.
“This deal strengthens F&R and should accelerate its growth and benefit its customers across the sell side, buy side and trading venues. Blackstone’s strong relationships in the financial services industry and long and successful history of corporate partnerships will help F&R provide new and innovative products and services, drive further efficiencies and navigate ongoing industry consolidation,” says Thomson Reuters president and CEO Jim Smith.
The parties have not announced who will lead the new entity, but say the president and CEO will be a non-voting member of a 10-person board comprising four representatives from Thomson Reuters and five from Blackstone. However, this board is not expected to include Peter Grauer, who serves on Blackstone’s board in addition to his role as chairman of rival data vendor Bloomberg. Grauer is expected to remain Bloomberg chairman and to leave Blackstone’s board to avoid any conflicts of interest.
Industry analyst Hugh Stewart says a deal such as this was on the cards. “Financial information, markets and trading system infrastructure companies are far more consistently profitable institutions in financial services than banks, asset managers and insurers,” and could help diversify and boost Blackstone’s revenue stream. At the same time, he says “a good dose of Blackstone’s private equity management style” will refresh the older management styles still held in parts of Thomson and Reuters and “further improve financial performance and optimize the business.”
Thomson closed its acquisition of Reuters in 2008 for £8.5 billion (around $17.2 billion at 2007 exchange rates, when the deal was announced), combining the Reuters data and news business with its smaller rival Thomson Financial under the merged Thomson Reuters organization. However, the business was hit almost immediately by the credit crunch and financial crisis, and for several years struggled with declining revenues.
“I am proud of the F&R organization and all of the hard work that has gone into turning around the business over the last six years,” Smith says. “Today’s announcement reflects the strength of the F&R business and its future potential. We believe F&R will be even stronger with Blackstone as a partner. The transaction will provide immediate value to Thomson Reuters shareholders and our ownership interest in F&R will enable Thomson Reuters to participate in the future upside of the business.”
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