Sustainalytics Acquisition: Key Details, Impact, and What Comes Next

Morningstar's acquisition of Sustainalytics marks a significant milestone in the investment industry. By fully integrating Sustainalytics' ESG research and ratings, Morningstar aims to enhance its offerings and meet the growing demand for responsible investment strategies. This strategic move underscores the importance of ESG data in shaping sustainable investment decisions and influencing capital across the global market.

What Is Sustainalytics?

Founded in 1995, Sustainalytics specializes in ESG research, ratings, and analytics. Its core products include ESG Risk Ratings, Climate Solutions, and Stewardship Services. A unique selling point is its comprehensive ESG coverage, offering tailored services for both investors and corporate clients. With a global presence of 17 offices and over 1,800 staff members, Sustainalytics stands out for its multidisciplinary expertise and integration with Morningstar, providing enhanced value to its clients.

Who Acquired Sustainalytics?

Morningstar is a leading provider of independent investment research and management services. The company offers a wide range of financial products, including comprehensive analysis and ratings for stocks, bonds, ETFs, and mutual funds. Their investment tools, such as portfolio management tools and market barometers, cater to both individual investors and financial professionals. Morningstar's significant market position is reinforced by its proprietary indices and extensive market analysis, making it a trusted source in the financial services industry.

When Was Sustainalytics Acquired?

Morningstar announced its agreement to acquire Sustainalytics on April 21, 2020, and completed the acquisition on July 6, 2020. This acquisition occurred during a period of heightened focus on ESG (Environmental, Social, and Governance) factors in the investment industry. The timing aligns with a broader industry trend towards integrating ESG data into investment decisions, driven by increasing demand for sustainable finance and stakeholder capitalism.

Why Was Sustainalytics Acquired?

• Market Expansion: The acquisition allows Morningstar to expand its market presence by integrating Sustainalytics' ESG data and insights across its research and solutions for various segments, including individual investors, advisors, private equity firms, asset managers and owners, plan sponsors, and credit issuers. Sustainalytics offers data on 40,000 companies worldwide and ratings on 20,000 companies and 172 countries, significantly broadening Morningstar's reach and capabilities in the ESG space.
• Technology Integration: Morningstar plans to integrate Sustainalytics' ESG data and insights across its existing research and solutions. This includes individual investors, advisors, private equity firms, asset managers and owners, plan sponsors, and credit issuers. The integration aims to provide comprehensive ESG analytics from a single security to a portfolio view, enhancing the personalization of portfolios across asset classes.
• Competitive Advantage: By acquiring Sustainalytics, Morningstar aims to fast-track its ability to offer independent, sustainable investing analytics. Sustainalytics' well-known ESG Risk Ratings and extensive suite of security-level and country-level ESG data, research, ratings, and products provide Morningstar with a competitive edge in meeting the growing demand for sustainable investing. The combined scale and resources of Morningstar and Sustainalytics enable them to influence capital across the entire investment spectrum and make ESG a part of every investment consideration.

Acquisition Terms

• Acquisition Price: The transaction consideration includes a cash payment at closing of approximately EUR 55 million. Additional cash payments will be made in 2021 and 2022 based on a multiple of Sustainalytics' 2020 and 2021 fiscal year revenues. The enterprise value of Sustainalytics is estimated to be EUR 170 million based on the upfront consideration.
• Payment Method: The transaction will be funded with a mix of cash and debt.
• Key Conditions or Agreements:
  • Morningstar currently owns an approximate 40% ownership stake in Sustainalytics and will purchase the remaining approximate 60% of Sustainalytics shares upon closing of the transaction.
  • The closing of the transaction is subject to customary closing conditions and is expected to occur early in the third quarter of 2020.
  • Morningstar plans to continue investing in Sustainalytics' existing business while integrating ESG data and insights across its own research and solutions.
  • All Sustainalytics employees are planned to join the Morningstar family under the existing Sustainalytics leadership team.
  • The transaction is expected to have minimal dilution to net income per share post-closing, excluding any impacts of purchase accounting and deal-related expenses.

Impact on Sustainalytics

The acquisition of Sustainalytics by Morningstar has led to significant changes in operations and management. Sustainalytics' existing leadership team and its 650 employees have seamlessly integrated into Morningstar, ensuring continuity and leveraging their expertise. This integration aims to enhance the delivery of ESG data and insights across Morningstar's research and solutions, benefiting a wide range of market segments. The collaboration has also accelerated the development of innovative ESG products, further solidifying Morningstar's position as a leader in sustainable investing.

In terms of product offerings, the acquisition has expanded Morningstar's capabilities by incorporating Sustainalytics' comprehensive ESG Risk Ratings and other data into its existing suite of tools. This integration allows for more personalized and detailed ESG analytics, catering to the growing demand for sustainable investment strategies. Employee reactions have been positive, with Sustainalytics' CEO Michael Jantzi expressing enthusiasm about the potential to amplify their ESG insights. Customers are expected to benefit from the enhanced offerings, aligning with the increasing focus on responsible investing.

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