Moody’s Corp. (MCO) recently announced the acquisition of a majority stake in Gurgaon, India-based Copal Partners for an undisclosed amount.
The Copal Partners group of companies provides outsourced research, analytics and consulting services to clients in the financial sector. The group boasts a strong base of more than 100 institutional clients. Apart from Moody’s, financial giants like Citigroup, Bank of America Merrill Lynch and Deutsche Bank hold stakes in Copal Partners.
Moody's expects the acquisition to be accretive to its fiscal 2012 earnings. Although Moody’s did not disclose the acquisition price, the company announced that it would fund the transaction through its $480.0 million cash balance.
The acquisition is expected to increase Moody’s penetration in the emerging Asia-Pacific and Latin American markets where Copal Partners has a presence. We are particularly optimistic about the fast-growing Chinese and Indian markets and believe that Copal’s position in these markets will provide Moody’s a competitive edge over its peers Fitch and The McGraw-Hill Companies Inc. (MHP) subsidiary Standard & Poor’s Financial Services LLC.
Copal Partners’ strong client base, including the French banking giant Societe Genrale, is expected to enhance Moody’s Analytics (MA) services gong forward.
Moody’s Analytics (MA) has emerged as a key growth driver for the company over the past few years and the company has been dependant on acquisitions to maintain this growth. Moody’s acquired CSI Global Education, Inc., Canada’s leading provider of financial learning, credentials, and certification in November 2010. The company also made four acquisitions in 2008 to bolster its Analytics revenue.
These acquisitions have helped Moody’s to maintain its growth trajectory, particularly in the Analytics division and offset the sluggish performance of the Investor Service division. In the third quarter of 2011, Moody's Analytics (MA) revenues grew 16.0% year over year to $179.9 million, buoyed by an increase in revenue from Research, Data and Analytics revenues (up 9.0%) and Risk Management software (up 12.0%). MA revenues in the U.S. and international markets saw year-over-year increases of 6.0% and 24.0%, respectively.
We believe that Moody’s will continue acquiring companies with operations complementary to its MA division, which in turn will further drive top-line growth over the long term. However, a sluggish global economy, increasing regulatory complications and increasing competition may hurt its profitability going forward.
We remain Neutral on a long-term basis (6-12 months). Currently, Moody’s has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).
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