S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

All right. We can go ahead and get started. Good afternoon, everybody. I'm Patrick O'Shaughnessy. I cover capital markets here at Raymond James. Up next, we have S&P Global. And presenting on their behalf, we have President and CEO, Doug Peterson. Doug is going to go through a handful of slides as we kick it off, and then we will do a fireside chat. There is chat functionality via your Zoom. You can feel free to submit a question, and I will do my best to incorporate it into the conversation as appropriate. And with that, Doug, welcome. Thanks for joining us.

Thank you, Patrick, and thank you for hosting this conference again. I'm missing everyone not being in Orlando this year. But let me start off by talking a little bit about the company for a few minutes. And the first slide I'm going to share just gives you a view of the divisions of the company, which has the 4 divisions that all of them provide data analytics, research, benchmarks, credit ratings, and increasingly, ESG solutions. S&P was formed in 1860 when Henry Varnum Poor published the first compendium of articles and information and very deep analytics about the railroad and canal industries in the United States. It was the first time that somebody was providing comprehensive, independent, consistent data. And that philosophy has continued through our company as we had over the years, the McGraws, the Hills, which is McGraw-Hill, Warren Platt that formed Platts and as it continues forward with these divisions. And we'll talk more about also what it means for the acquisition and merger that we just announced with IHS Markit last year. The next slide gives you some information about the evolution of the growth of our business. We've had strong revenue growth the past 15 years. Most of our businesses are either subscription-based or have some sort of recurring revenue. You can see a little bit more volatility in the upper left-hand corner of the Ratings revenue, which does have more volatility. But even so, that's a very steady growth trajectory with the largest downturn that came when the RMBS markets basically changed all their characteristics and kind of were wound down in 2007 and 2008. If we look at the next slide, I can give you some of the characteristics of our 2020 performance. In 2020, we cracked the $7 billion revenue level. Of that, 49% is from the Ratings business, 28% from Market Intelligence, 12% from Platts and about -- I'm sorry, 13.5% from Indices and about 12% from Platts. The revenue is split, as you can see, across the business, about half of that in the Ratings business. Similarly, 54% of the operating segment profit comes from the Ratings business, 17% from Market Intelligence and 16.5% from Indices and 12% from Platts. You can see that this is a business that all of them are -- have very strong margins. And as you can see on the next slide, we've had very consistent revenue growth, 7% over the last 5 years when we were at $5.3 billion in 2015 up to $7.4 billion in 2020. Along with that, it's been very important part of our performance on the next slide shows you that we have increased our margin over -- since 2015 from 39.7% to 53.3%. That's 1,360 basis point improvement in our margin, which is -- averages out to about 270 basis points per year. We have a very disciplined approach to managing the company. We'd like to start the year with a clear strategy, with everyone in the company having goals and objectives that fit to that strategy that also fit to our budget process. We have an approach to managing the company on a quarterly basis, to look at quarterly reviews. We also have a very disciplined approach to organic as well as inorganic investments to make sure that we're looking at them. But that doesn't mean we're not willing to take some investments that don't work out. It's important for us that we're really leading and looking at how we can grow and how we can innovate. If you look at the next slide, based on those characteristics along with our repurchase of shares, we've delivered a 20% CAGR over the last 5 years to go from $4.60 per share to $11.69 in 2020. Now I talked before about how we think about the key trends that are driving the market. What is it that also drove us to think about the acquisition and merger with IHS Markit. If you look at this slide -- I'm not going to go through all of these. But what are some of the trends that really are helping us look at longer-term growth in our business? One of them is about debt outstanding across time, and this is really about how capital markets develop over time across different markets around the world. The U.S. is definitely a capital market. And once debt becomes a corporate bond, it stays as a corporate bond. But as markets develop, they look for more and more ratings data, for consistent financial information from the market, and we feel that we're there to serve those needs. China is a regional play for us, quite important as we see the Chinese capital markets develop. And we built a Chinese credit rating agency, and we're growing there over the last couple of years. The next below that is assets continue to shift to index-related and ETF-type assets. And we've been benefiting from that trend and will further benefit from with the IHS Markit. And then finally, down on the left-hand corner, the ESG is gaining momentum. I talk about it being the second inning or third inning. But at the same time, the shape of the field and the rules of the game are getting -- are starting to get shaped, and we're at the table helping shape those. On the next slide, I referred to this merger that we're doing with IHS Markit that we announced on November 30 last year. We spent well over a year analyzing our opportunities to grow and where we could use our capital to really expand and build scale. And the IHS Markit business was one that we felt that merging with them was going to allow us to enhance our customer value proposition with these very complementary assets. It's going to give us scale in the highest growth markets and the ability to use what we've done with Kensho, which is our machine learning and data sciences machine, along with the data lake that IHS Markit has. This portfolio putting it together would end up with over 75% of the revenue will be recurring or subscription-like revenue. We've developed a synergy case of $480 million of revenue synergies and $350 million -- or sorry, $480 million of cost synergies and $350 million of revenue synergies, which is an EBITDA impact of $680 million. We have a very strong balance sheet at S&P Global. That's why we've built our company and maintained it. And we have an opportunity to have a very strong balance sheet and strong return of capital with some flexibility for M&A, although that's not going to be our top priority. And we do have also very strong talent. As we continue forward on the next slide, in addition to having this commitment to having a high-quality execution on the IHS Markit merger, we have some other key initiatives during the year. You heard about China and Asia. We have some initiatives around customer orientation and customer experience, a couple of those. We have a platform, the S&P Global platform, the way that supports all of our businesses as well as the Market Intelligence business. In Platts business, we're expanding our offerings outside of traditional energy into ag, shipping, petrochemicals and into the ESG and energy transition space. Ratings360 is our platform that we use for our Ratings clients. We're including more asset coverage and new types of -- Ratings customers have access to very rich data so they can understand their business. Across the board, we're looking at all types of new innovation and technology, customer experience. And the ESG is one of those opportunities that I've already highlighted is a critical opportunity right now, and we are investing quickly in that and have created a unit that, that's what they're focusing on. So with that, thank you for joining us. I look forward to now speaking with Patrick. And Patrick, thank you again for inviting us back to the conference.

All right. Terrific. Thank you for the slides, Doug. And certainly, I think we have some questions to dig into some of those topics. First question, deal-related. A key appeal of S&P Global to investors is that the company is viewed as owning a curated portfolio of benchmark businesses that, in general, enjoy pricing power and barriers to entry. Is there a risk that acquiring IHS Markit erodes those attractive attributes?

Not really because if you think about what we've talked about here, we've looked for the ways where we can grow and where are the customers most looking for new analytics, new data, new benchmarks. And so as we thought about that, we looked at over that year before we even picked up the phone to talk to IHS Markit. There were areas in fixed income indices and fixed income data and analytics, in debt capital markets, in ESG, in private markets, private company data, supply chain analytics. And so you think about where that growth is going to be coming from and that increasing demand for these specialized analytics, that's where IHS Markit and us together will have a much stronger position. So this is the way we thought about the merger and how we can grow, so we can maintain the strength of our businesses and the strength of the IHS Markit businesses. Putting them together allows us to really move a lot faster in the areas where the fastest growth is coming.

Got it. And I think kind of building off of your response to that question, there's definitely some overlap between the 2 businesses in terms of ESG content and private company content. To what extent does the timing of the deal reflect your desire to accelerate S&P's efforts in those areas at what's arguably an inflection point in the market opportunity?

Yes. This is definitely one of the opportunities that we looked at. We felt that some of these areas, as you mentioned, the private company content, ESG, are going to start accelerating. Just think for a second about how many companies have delayed doing an IPO that are now in round B, round C, sometimes it looks like even round D raising of capital instead of doing IPOs, and the kind of demand we hear from our corporate customers and financial institutions customers to have a better grasp on their supply chain. This is all of that type of private company data. And we see that between a combination of that demand increasing and expectations increasing, there's also an opportunity with new data tools. And like, as you know, we have Kensho. With Kensho, we've had all types of new learnings on how we can integrate data, et cetera. So we felt that these were the opportunities that would allow us to drive towards this merger to really create a lot of value.

Got it. And I think from some of your conference calls, it sounds like a lot of -- or maybe not a lot, but a good chunk of the appeal of the acquisition is the distribution of IHS content via your platform and then leveraging your tools like Kensho. And it sounds like initial customer feedback has been pretty positive in that regard. What are the current constraints on the customer adoption of some of these products that are going to be reduced as the 2 entities combine?

Well, right now, we think about it, there's a -- some of the reference data and specialized data that IHS Markit has, they're having to -- they find ways that they can deliver it through some of their workflow processes, but it's not really getting out there. It's -- sometimes, we call it exhaust in our own company, where we're running an analytical process and there's a lot of specialized data around the edges of that, that produce the final product. And right now, we're not commercializing that data ourselves, much less IHS Markit commercializing that data. So this is a way to pick up a lot of reference data and information that comes out of analytical processes that's not even being commercialized at all today anywhere. And so if you think about it, there's really a couple of different ways that we think about this data story. The first is taking IHS Markit data and putting it through our Desktop, getting out to the 250,000 users that we already have so that they can get access to that kind of specialized data or data that's not even being commercialized at all today. And then the second is using data that's coming from our businesses into the IHS Markit workflow. And there's a lot of really high-quality software and workflow services that IHS Markit has. But let me just give you one example. If you were in the debt capital markets business and you are an IHS Markit client of their debt capital markets workflow tools, you now can take a lot of reference data of information, specialized data, ratings reference data, et cetera, and build that in a way that we can provide more information to that debt capital markets client. So we're thinking about it from a couple of different angles, but the workflow as well as the Desktop or 2 that are very important.

Got it. In your S-4 filing, S&P management projected IHS Markit will grow revenue at an 8% CAGR between 2020 and 2023, compares to about a 3% average growth rate over the past 5 years. Maybe some of that is a cyclical rebound, and they certainly had a tougher year in 2020. Has anything structurally improved at IHS Markit in your view that kind of supports those growth rate projections and even beyond 2023?

Well, there's a couple of things. First of all, we do think that there's going to be upside, especially to kick in, in the third, fourth and fifth year from the transaction from these synergies that we'll get on the revenue side. In addition to that, when we look at that 5-year period, the growth rate in 2018 and 2019 at IHS Markit were 6%. Those were what we think are more normalized years. IHS Markit has gone through a downturn in their upstream business in the resources sector, which was a drag on their top line growth, which we think is actually starting to go away. We don't think that, that drag will be there. In fact, with the current price of oil, there might even be a slight rebound. I'm not necessarily going to count on that. So I think that the 6% normalized growth over those 2 years, the drag that they had, had from the resources business, our ability to start getting more synergies over time, we think that these are the opportunities. And they have something that's just started to get monetized, which is the data lake. And we think that the data lake through the financial services business, along with our Kensho and Marketplace capabilities, is one of those upsides that we're very excited about.

Got it. That makes sense. I would imagine that given its breadth of businesses, integrating IHS Markit is going to be orders of magnitude more complex than integrating your last major acquisition which was SNL Financial. But what did S&P, what did you and your management team learn from SNL Financial that you can apply to this acquisition?

Well, what we learned from SNL and what I've learned in my entire career is that the first thing you do is you have to have discipline. You need to set up a program and a plan where everybody knows that there's going to be a certain frequency every week, every day, every week, every month, whatever the frequency is that there's going to be an escalation of oversight with an integration management office. You want to call it like a PMO, a project management office. We've started setting that up. That's one of the work streams that we've already started setting up. There's an incredible amount of enthusiasm. Obviously, we don't manage each other's companies yet. So we have to make sure that we maintain the right kind of firewalls. But we've set up the processes and the planning around a very robust IMO. The second thing we learned from the SNL deal was to have what we call a VCO, value capture office. We want to make sure that we keep on track for our synergies and that we're actually holding people accountable that they are on track to achieve synergies. So that approach to tracking metrics, to tracking not just the integration success but also the financial success is very important. And then the third is that we don't want to make this all about synergies. Synergies is critical, but it's also about our purpose, our values, our strategy. And that's also something that we want to make sure over the next few months as we're waiting that we're putting in place a very compelling strategy, compelling values. Our employees will be excited by having the right kind of opportunities that people will grow in this company, have opportunities to develop careers and have that kind of commitment to making this a great place to work and a great place where we can serve our clients from. So those are the 3 keys. It's the integration management, it's value capture, and then it's having the right kind of purpose and values and strategy in place. So on day 1, we can really launch a compelling proposition.

Got it. And then, I guess, in terms of holding yourselves accountable to achieving those things, in the S-4 filing, there's a section detailing milestone incentive payments to S&P senior executives that cliff vest, I believe, 3 years after the deal is closed. What's the deal-related criteria in terms of earning those bonuses?

Yes, those -- that criteria is still with our compensation committee. At the time the deal closes, the final terms and conditions of those will be set. And there will be some sort of performance criteria around them. It could be based on cost synergy capture, but there will be performance criteria.

Got it. And then I mentioned SNL, but another smaller acquisition that you guys did a few years ago was Kensho, spent about $550 million plus some employee retention cost for that one. How would you evaluate the return on your investment there? It certainly seems as though Kensho has generated substantial efficiency-related expense savings for the company. But to what extent has it created new monetization opportunities for S&P?

Well, in order for us to capture that in the sense, I talked about the value capture office, our CFO's office does continue to track how we're doing in terms of our delivery of the value of the Kensho transaction. And we believe that we've far exceeded the acquisition price we paid for it. And if you look at Kensho, I'm going to simplify and put the -- what they've produced into 2 different categories. The first would be using their machine learning -- incredibly advanced machine learning to allow us to operate more effectively and more efficiently. And this allows us to do things faster and cheaper. As an example, we've talked about Kensho Scribe, which was the process that we use to look at all of our earnings transcripts. And fortunately, not only did we have the earnings transcripts that we had monetized and it's a product we have, we had also retained the recordings. And Kensho is able to take a program using machine learning and learn how to transcribe earnings calls. And that's allowed us to take the amount of time to go from having a transcript to a -- from having a call to transcript by 60% to 80%, and it's more accurate. And so this is an example of something we've done. Now on the other hand, it's also that Kensho Scribe is now a tool, which we're starting to monetize through the Marketplace. So we've been able to take, in particular, many, many different processes. Another one is Market-on-Close in Platts, where we've also had an 80% improvement in the time to market from when a market closes, in the insights and news and research and price setting around that, using the machine learning and really high-quality machine learning from Kensho. So this is where we feel that there -- we can continue with that. It's a very committed team, high-quality people. We've been able to retain them and attract new people. And when you bring a whole new data set like what IHS Markit brings, the amount of motivation and interest is even higher from the Kensho team.

Got it. All right. So shifting gears now from IHS Markit to the existing business, which is still your day-to-day job. Your initial 2021 outlook calls for Ratings revenue to grow in the low to mid-single-digit range this year. And that follows on the heels of 16% growth in 2020. What are the factors that are driving your outlook for positive revenue growth despite the challenging comp and expectations for a modest decline in global issuance?

Yes. There's a few things in there. First of all, as you know, the Ratings revenue is driven by ratings issuance and other factors. And rating issuance last year was quite strong, in fact, the last couple of years. It's also been strong in January and February. It's actually even a record in February. I don't like to look at ratings issuance 1 month by month. But it started off at a strong level because spreads are low, interest rates are low, there's a lot of refinancing going on, there's a lot of deals going on. So one aspect of our earnings projections is based on M&A transaction. There was a lot of M&A deals done in the fourth quarter last year that weren't -- they were announced but not completed. And that also included deals by SPACs. And so we think that there's a pretty healthy pipeline of M&A, which is going to include financing, refinancing that will be one of the drivers. We also had a lot of new clients last year who were the first time they'd ever been rated, and that will continue to generate ratings fees, their issuer ratings fees that we'll get on top of that. Last year, the overall issuance was up, but structured finance was way down. And so this year, we projected that both financial institutions and structured finance issuance will be up. So net-net, even though we think the total issuance will be down, we think that different types of asset classes, high yield, financial institutions, structured finance, we think that those will be up. And we think that the M&A market as well as some of the issuer fees are going to allow us to have revenue growth this year.

Got it. So kind of volume growth, issuance growth in the right places, to some extent. And you did touch on interest rates and credit spreads are still at very low levels. Interest rates have moved a little bit higher last few weeks. But certainly on a historical basis, they're very low. Corporate balance sheet leverage is relatively elevated relative to historical levels. So it feels like these are all long-term tailwinds in terms of credit spreads tightening, interest rates moving lower. Corporate balance sheet has maybe been structured a little bit more levered. And those have all benefited the Ratings business, but it feels like they can't persist indefinitely. Like maybe they can stay at these levels, but they can't get substantially better from here unless we're talking about negative rates and negative spreads or things that don't really sound plausible. So to what extent do you think those long-term trends have been a material tailwind for S&P? Or do I and others assign too much importance to them?

Well, I think they are important tailwinds, and I'm going to look at it in a couple of different ways. One is what we like to look at when bank markets become capital markets. And this is where sometimes people are surprised when I talk about Europe being such an important market for us and such an important growth market as Europe's bank markets become more and more capital markets. This is something that is driven by some of the trends you talked about: the lower interest rates, the M&A activity, credit spreads, et cetera. And so Europe is a market that is becoming more slowly, not as fast as in the U.S., but slowly becoming more of a capital market where debt goes into bonds instead of loans. And also, the loans get rated and get put into structured products. China is a market where we think that the market will develop. And there's others around the world in Asia, et cetera, where they're -- where we think that the capital markets will be developing. And then there's another point that once a bond becomes a bond, it stays as a bond. When debt is shifted into a bond format, it stays in bonds when it gets refinanced. It's very -- it's highly unlikely that we see a bond get converted into a loan because corporations like the idea of having the fixed income, the fixed rate and access to that type of investor class. So these are trends that we think will continue.

Got it. So you mentioned China. As you think about the Chinese in-country ratings opportunity, do the recent stumbles of existing Chinese bond ratings leaders validate your decision to enter the market, your wholly owned subsidiary that you control and you can manage the compliance and everything else?

Well, I don't know if I use the word validate, but it continues to give us confidence that we entered in the right way. And when we were entering China, I felt that it was important for us to bring our global standards to a domestic capital market. So we brought -- the way we run the business is based on global standards. It's the exact same regulatory standards that we would meet in any market around the world. We started it out at scale. So instead of just having 3 or 4 analysts who would rate bonds and then over time we've increased it, we started immediately with over 30 analysts. And so I feel like our approach to the market was one where we're taking it seriously as a long-term development of the capital markets. The recent events that have happened there are something that have led to more and more interest in how we're running our business and the approach we take to the analytics. So I do think that it's -- right now, it's good timing for us that people are -- that we're already in the market when these sorts of things are happening, and people are turning to us to understand our approach, to understand our opinions.

Got it. So something back in the U.S. that investors are keeping an eye on is the various ways in which the Biden administration and the Democrat-led Congress are going to take or potentially take a much tougher stance on financial market regulation. Obviously, you and Moody's and Fitch went through a lot of conversations following the financial crisis, and things have been relatively stable on that front of late. How are you looking at the potential regulatory outlook specifically as it pertains to the issuer pays model in the Ratings business?

So when I think about the last 15 years, in 2006, the Congress passed a rule called the CRARA, which was the Credit Rating Agency Act. It was the first time in the United States that credit rating agencies were going to become regulated. Up until before, then it was just the NRSRO, which was a license as opposed to a regulation framework. Dodd-Frank then added a whole new set of additional criteria and rules and regulations into the CRARA. And so we've been operating under that for the past 10 years. I think that the SEC has done an excellent job building a very serious, high-quality approach to regulating the industry. I think the industry overall is better off with the regulation. There's certainty. There's approach to how it's being managed. There's consistency across -- in our case, but also across the industry. And I'm not hearing that there's a lot of cry to come in and reregulate the industry. There might be some looking around the edges. And anything that would be -- that would need to change the fundamental business model will have to go back to Congress because of the way the CRARA Act and Dodd-Frank were written. So I don't hear this is something that's coming up in Congress. It could at some point. And then the last thing I'd like to say is that after 10 years of really looking hard at how we run the business and retooling all of our criteria, unfortunately, COVID hit, and we had to apply our criteria and our Ratings approach during a stressed market. So in a sense, we were -- we hit a stress test over the last year, and all of our ratings performed as expected. We felt that the outcome of the crisis -- of the COVID crisis from a credit point of view actually validates the approach we've taken and was -- allowed us to see the performance of our ratings in a crisis. And they worked out the way we thought they would.

Very interesting. So kind of switching gears to other components of the business as well with the remaining time that we have. With the Platts business, so there's increased global emphasis being placed right now on net 0-carbon policies and otherwise reducing the usage and the impact of fossil fuels. What are the implications for S&P's Platts franchise, much of which is tied to oil?

Yes. First of all, the oil will be around for a while. It's not going away. Then there's a whole argument is when is peak oil? Is it in '20 -- is it in 2026, 2036? But we think that there will continue to be a need for pricing and benchmarks and research and analytics around oil and gas and other hydrocarbons. But at the same time, there's going to be an energy transition play. Energy transition is going to be moving from wood to coal to petroleum to gas to renewables. And we feel that we bring the expertise to be a leader in the analytics and research around energy transition. In parallel with that, there's a whole new set of energy assets, which people want to understand more about, whether it's how do batteries work, what are the approaches to energy storage, what are the grids that need to be built around the world to be able to support a more of an electrification as opposed to a gasification approach to running economies. And then there also will be opportunities for us to diversify into energy-related noncarbon assets. And by that, I mean things like metals, copper, which is one of the most important components in EVs, things like lithium for lithium batteries. So we see that there's an opportunity to accompany and help lead the data and analytics and energy transition as well as diversify into the new areas which are going to be really important components of energy transition.

Got you. I had a question come in. Basically, as a follow-up to that, obviously, the price of oil has moved up a fair amount over the last few months. I think that there's a view of, hey, are we entering another commodity super cycle here. If so, what sort of upside does that present for Platts or potentially maybe more upside for IHS Markit's resources business?

Yes. This would be -- we always kind of look at what's the range of oil that is comfortable for producers and comfortable for users. And that's in that kind of $40 to $60 range. Once you get above these certain levels, it becomes very expensive for the consumers. Once you go below certain levels, it becomes quite painful for the producers. But we're back in a range where, based on some of the actions by the Saudis and the Russians, the market has stabilized at a certain level that makes it comfortable for producers. And it's -- because of the COVID, there hasn't been that much pressure either on the users. So producers and users seem to be a good balance. I do think that this could mean that there will be additional investment. I also look towards the last question you asked about the energy transition. When I see what's happening with major energy companies that -- I used to call major oil companies, but they're becoming energy companies. They're exactly the types of companies that also need the data and analytics that we're already starting to have about carbon and carbon registries and new energy sources and global supply chain. So I do think that these will also be products that will serve well as people look at energy transition. But I do think that there could be some opportunities for some stabilization of the upstream as well as the downstream businesses in the oil sector.

Got it. That makes sense. Shifting to Market Intelligence and specifically the Desktop and Data Management Solution components. What's the state of the competitive landscape from S&P's perspective? And does the recently closed acquisition of Refinitiv by LSE Group change things in any way?

Well, it is a very competitive market. So that -- I have to be honest with you, there's a lot of competitors. There's a lot of competitors coming from different directions. So you have the exchanges, which are all expanding their work and their assets when it comes to distribution, to desktops, et cetera. You have other companies who are looking to get in the business. And you have the traditional ones, where you think about Refinitiv and LSE, Bloomberg, et cetera. So it's a very competitive market. But the way we think about it is we want to think about the personas and the users and who are the people that we serve and how can we make their lives easier and how can we make their lives easier with a better experience at the desktop, better visualization, better graphics and better download tools. And this example, talking about Kensho, we've upgraded our -- how we think about search. We have this omnisearch we've talked about the last couple of years. It's now live on the Market Intelligence platform. It makes it much easier to search for data in completely different ways. It uses a different approach to logic and finding data inside of our databases. So we think that serving our customers and bringing them exactly what they need when they need it is what's important. So we've got -- we have to compete by meeting customer needs. And one final thing I'd say, we're not -- we don't think that competing in every single segment everywhere is absolutely necessary. We think that we're really well diversified. We're in buy side, sell side, corporates, as well as government and academic. So we think that we've got a really good diversification across all these different users. And the data that IHS Markit is going to bring in transportation, in financial services and different aspects of new users is going to allow us to bring together this data and the users to have a very compelling offer.

Got it. Makes sense. And then on the index franchise, what are some of the investments that you're making in that business that you're excited about? And how adding some of IHS' properties expand the opportunity?

We've been investing in a couple of things. One of them in our tools that give our asset management clients more opportunities to understand what are the interplay of different asset classes as well as ways that they might think about new products that they could develop with us. Obviously, any product of an index that would be developed even in conjunction with a client comes back to our approach to how we have the right governance around it. Our index governance is absolutely critical to everything we do, so that we know that there's consistency, there's replicability, there's controls around any index that goes out from our company with our name on it. So -- but we've come up with new ways for faster innovation to work with our clients. Another thing is that we've looked at what are the different type of asset classes, whether it's fixed income, multi-asset class and factor indices. And we've also found ways to work with the buy side and the sell side in both cases to identify pools of capital that's looking for these types of characteristics so we can also move faster there.

Got it. And then kind of a deal-related question, but you guys are pretty limited of what you can do with your share repurchases until the deal closes. In the meantime, you have a lot of cash, and you will be adding a lot more cash. How aggressive will you plan to be with the repurchases once the deal does close?

Well, I don't have an ability to say what the number would be or where we would end up. But what I would tell you is that you saw when we announced the transaction that we also, through a modeling we had done, felt that the scale of this business and the cash generation would allow us to return 85% as a target of our free cash flow to our shareholders and, at the same time, be able to have adequate capital to invest in our business, to invest in technology, to have a little bit of capital here and there for tuck-in acquisitions. And so this is really our approach. And we think that right upfront when we close the transaction, we will look very carefully at our cash position and the ability to do any refinancing of our debt to strengthen our balance sheet to ensure that we have the right approach to managing the balance sheet. So really think about it, the 85% target is an increase from where we are now. We will have substantial cash. It's something we will be able to talk about as soon as the deal is closed.

All right. Terrific. Maybe time for one last question, and this one came in. It's probably a good one to end on. The question is, you discussed your 2021 outlook. What about your outlook over the following years in terms of organic growth and margin potential?

Yes. So when we think about the following years, we've looked at a 5% to 7.5% growth rate over the following years. We do think that we can be in that mid-single-digit top line growth range. And we have done -- as you saw in the earlier slide, we've been doing 200-plus basis point improvement in margin every year. We'll obviously look carefully at the margin profile of the combined company. We have an approach where we want to manage -- we want to target top line growth that's higher than our expense growth, so we can have what we call positive jaws. That's a philosophy of how we run the business. So we believe that over time, we can continue with top line growth from the combined assets as well as the synergies that are going to be coming. And then we think that through the cost synergies and just managing the business in a way that we have that discipline that we can continue to improve our margins.

All right. Perfect. Well, we're up against the clock. So we can wrap it up there. But Doug, thank you very much for joining me again this year. And hopefully, we can do it down in Orlando next year.

I hope so. Thanks again.

All right. Take care.

Bye.