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

Thank you, everybody, for joining us. This is Hamzah Mazari, Business Services Head for Jefferies in North America. Very pleased to have Doug Peterson, CEO of S&P Global, with us here for this fireside chat. I also have my colleague, Mario Cortellacci, who will be fielding questions from the audience. Again, at any time there should be a type of question -- where you can type a question in the chat, and we'll field those questions as well later in the dialogue. So feel free to send them at any time. So with that, Doug, thank you so much for joining us. It's a pleasure to have you, as always.

Thank you, Hamzah. Great to be with you here today. I wish we could be in person.

Yes, for sure, for sure. Next time, hopefully.

So to kick it off, Doug, maybe you could just talk about the IHS Markit transaction, specifically sort of your deal rationale. And also, what type of a scale and competitive advantage does this now give you relative to some of your peers? And what are your customers saying? Just give us some flavor there.

Yes. So first of all, again, thank you for hosting us today. It's great to be here. And I almost have to go back 1.5 years, when we first started looking at how were we going to position ourselves strategically in the long run to serve our customers and serve our markets in the best way. We identified big themes, like energy transition, ESG, private markets, private capital markets, new ways to think about supply chain, new ways to think about debt capital markets. As we started looking at where we could grow the fastest, whether it was organically through tuck-in acquisitions, we identified IHS Markit as a very complementary asset with what we always say is industrial logic when you put these 2 businesses together. So we've started now hearing back from our customers that they're really pleased to see that we will have the scale, whether it's global scale, operating scale, the ability to take things like data which is today in IHS Markit and put it into the Market Intelligence platform, data that's today in the Ratings business that can get built into some of the workflow tools and software tools that IHS Markit has, the ability to take carbon registry data, battery information that is in the energy business and move that into our ESG business. This is sort of the feedback that we're hearing from customers that are very interested to see how we can complement and supplement our data sets or delivery tools with more and more information than we have now. The scale is going to be something that we're very pleased with. It gives us global scale. It gives us operating scale. We can take advantage of the offshoring in our really high-quality data and software centers offshore and really help continue to supplement and grow the IHS Markit business faster. So we're very pleased with all we've seen. Since we actually announced the deal, it's given us a chance to get to know the company better. And the more we get to know it, the more excited we are.

Got you. And should investors expect sort of an updated view on synergies once the deal has closed and once you've had -- once you've dug in a little more? Is that the way to sort of think about updates around the transaction?

Yes. We don't plan on giving any updates on synergies until after the deal closes. It's not -- we still have firewalls between the 2 businesses. Despite having an excellent approach to working together, getting the teams to know each other, we still have firewalls about who can manage what, certain information that can't be transferred across the 2 businesses. So we're following all of the best practices in terms of integration planning, but also best practices in terms of ensuring that we're not making decisions across the businesses. So we won't update synergy numbers until after the deal closes.

Got it. And Doug, how do you think about sort of execution risk in integrating this asset? It's obviously very large relative to SNL. But then at the same time, I think people that know you sort of know that you took McGraw-Hill Financial and turned that around, which was quite complex, earlier in your history as CEO. And so just any thoughts as to execution risk, how you're thinking about that here.

Yes. So first of all, when I mentioned that we have an integration team, we've already announced the executive committee of the new company, who that's going to be. And we've been working together with that executive committee to make sure we're all aligned on our strategy, our vision, our purpose, our values. So that if you go all the way to the top of the organization, we will all be speaking with one consistent voice about all of the opportunities this just brings for our employees, for the markets, for our customers, for our shareholders, for all the different constituencies. So we will be speaking with one voice, which is a really important way to start. From there, we have an operating model at S&P Global. We have an operating philosophy, which starts with setting goals and objectives for how we track, our business system for tracking our performance every quarter, for ensuring that we have discipline around investments, how we're tracking them. And so we'll bring that same kind of discipline that we have as a company generally, and also that we had when we did the SNL deal, to have what we call value capture office, which will be tracking the synergies, making sure that we can report those out, that we're also making sure that we can see how we're allocating capital, what are the best ways to track resource allocation across the company. And then very importantly, we've discussed how we're going to allocate capital back to the shareholders after this transaction. And that's going to be one of the ways we also look financially, all the way from vision and values to strategy to execution, then into what does it mean for our shareholders? That will be the system that we continue to deploy in the new company.

Got it. And as you think about just your overall issuance forecast for 2021, any thoughts there? Any updates, what you see as sort of upside risk to that or downside risk and how you feel about sort of the issuance market overall? I know there was a lot of talk about pull-forward, and then that narrative changed. And so any thoughts there would be helpful.

Yes. So when you look at the issuance market so far, when we looked at the beginning of the year, we were expecting that the overall issuance would decline by about 3%. We don't have enough yet to change that macro view of issuance. But what I would tell you is that, so far, there is going to be a high level of loan issuance, so loan ratings issuance because there's been a lot of activity for loans. Along with that come CLO issuance, which is -- could be up potentially a little bit higher than we thought at the beginning of the year. There's been a lot of M&A activity. M&A activity is important. It helps drive a lot of issuance activity because people do refinancing or they issue new debt. And you also have a lot of companies coming through the very first time to public markets, either through loans or through bonds, because interest rates are still low and spreads are still quite low. So we're seeing, despite having shown that the markets would be down 3% total issuance for 2021, we haven't changed that yet. But we still see, though, that there are -- nontransaction revenues will still grow, surveillance fees as part of that, that will still grow. And we do think that there will be aspects and pockets of issuance that are strong. And we've seen that in the first couple of months of the year, very strong loan issuance, high yield and structured finance. So as you know, when we did our -- gave you our guidance, we showed that the Ratings business, despite issuance down, that our revenues would still be up for the year.

Got it. And I guess just one of your key items has been ESG. Could you walk us through the ESG offering as it sits today? Do you still see that as a 45%, 50% grower? Where does that sort of top out? Are there additional offerings that you can sort of layer in? Just give us a flavor there, too.

Yes. ESG is the #1 topic. I can't go to a meeting anywhere where we don't talk about E, S or G or ESG. It's something that all investors are starting to think about what it means for their own portfolio, if you're an institutional investor, an insurance company, if you're on the buy side. If you're on the sell side, you're starting to get interest from the buy side to bring offerings which have an ESG component in them, that they've got data and analytics around them. So we see that this is a very natural role for us to be part of. So we have -- philosophically, our company runs ourselves at a high standard of ESG. We also have ourselves embedded and involved with all of the major standard-setters around the world. We think it's important that instead of having fragmented standards, that you get some unified standards around the world. So we're very close to all of those groups. There's an alphabet soup of the GRIs and the IDCs or the World Economic Forum, the IFRS and SASB. We're very close to all those groups as standards get set around the globe. But commercially, we have a core set of tools. We've got the Trucost, which provides the premier climate information about companies. We have RobecoSAM, CSA SAM business, which is providing information we collect from companies, and that gets embedded in our ratings. In the Ratings business, we have the ESG Evaluation. And in Market Intelligence, we have a set of data tools and analytical tools. In the Index business, we have a set of indices which are sustainability or ESG indices. And in Platts, we're increasingly including more and more price assessments for renewable energy, for battery metals, for things that are either important for sustainability or part of the energy transition. So across the company, we've unified this with a single leader who's looking across ESG to ensure we have a unified strategy. And then to the core of your question, we still see this growing at a 40-plus percent rate at least for the foreseeable future. Finally, IHS Markit does bring some really attractive ESG assets, whether it's in their energy business or it's in their mobility space. Their transportation business has information about all of the EVs around the world, about the capacity of EVs, about battery metals, about carbon registries, et cetera. So we think that with IHS Markit, we can accelerate this position even faster.

Got you. Again, just for the audience, on the top right on your chat screen, there should be a ask a question button, and we'll be fielding those later, but feel free to send them in. The other question, Doug, would just be around noncore asset sales. Clearly, there's -- IHS' portfolio has a lot of different businesses, some are slower growth. We could probably guess which ones those are. Historically, you guys have cleaned up the portfolio. I refer to McGraw-Hill Financial when you took out J.D. Power and some of those assets. When would you sort of be in a position to see what fits, what doesn't fit, post this deal? Is that something that is being worked on as well?

We have no plans to divest of anything. This is -- that was never part of the deal rationale. It's a great portfolio. And things like the transportation business, it's not the same kind of business that J.D. Power was. It's a different business model. It's providing intelligence, what we always call essential intelligence, to investors, to the supply chain, to OEMs, et cetera. So right now, we don't have -- we have no plans to divest of anything right away. And that was never part of the deal rationale.

Got it. Makes sense. And then just, I guess, on the S&P Global platform initiative, where are you guys today? What benefits do you see accruing from that once that's done?

Yes. So as you know, we have this platform initiative with the Market Intelligence business being our core generator of the most valuable platforms that we're using across Platts, across Ratings business. It's also where we have our data tools, some of our best data specialists in the company. We have a lot of other research, other tools, that are coming from there. In addition, Market Intelligence, its own platform has been going through a merger between what was CapIQ and the SNL platform. That continues, and that's something that we're still working on through this year. Right now, about 80% of the Capital IQ features are available in the Market Intelligence platform. And throughout the year, this year, we're making both platforms available to users so they can have a very smooth transition to the new system. But in addition to that, as I mentioned earlier and to your question, we see a lot of opportunities to use this platform for IHS Markit data, IHS Markit data sets for research, news, et cetera. So this is definitely one part of the deal thesis as well as potentially some of the pricing models we use, the enterprise pricing model that we use in the Market Intelligence business, another potential upside. Later on, when we talk about some of our -- as we get into the deal more, we can talk later, some of the opportunities for revenue synergies.

Got you. And on the enterprise-wide contracts, is that sort of behind you now or 85% of the way through?

Yes. We're definitely north of 85%. What's left are either much smaller contracts that there might not be much of a benefit or some -- a few large contracts that are very spread out globally, multiple contracts. We're trying to unify them into a single contract. So there's still a little bit of upside from there. And we do see upside from IHS Markit because we found a lot of value in having an enterprise-wide approach to pricing instead of a per-seat pricing. And that's something that gave us more flexibility, gave customers more flexibility. Usage goes way up when you shift to that model, which gives us the ability to have a very productive pricing discussion later on.

Got it. Just on the cost side, Doug. Coming out of COVID, clearly, you highlighted some changes to the business model from a cost standpoint. I think you highlighted $120 million of cost savings. I think Ewout did. That's another new program after you've taken out $100 million plus previously. Maybe just talk about how much more room there is productivity-wise. And where are you sort of getting all these cost-saves from?

Yes. We've had plans. As you know, a few years ago, I mentioned the $100 million that we'd started. Now we have the $120 million. Plus, we have another $480 million that we've discussed for the synergies when we bring the 2 companies together. So those are all separate. They're not -- it's not one combined number. And we started this year, after we announced our new $120 million program, we actually started the year already with almost $50 million, $49 million of that already achieved, at least, from a run rate point of view. You didn't see the full number yet, but it's at a run rate. And then we can already see additional actions that are getting another $20 million, and we have some others coming. Now what areas do those come from? They come from continued approach to real estate. They come from different ways of putting in place a robotic process automation, so RPA. It comes from different ways that we can continue to reengineer our business when people -- when we have attrition, not necessarily replacing people through attrition, but moving some of those jobs into overseas operations, et cetera. So we have a whole series of ways of doing it. And then what I did mention is real estate. And real estate is one where we have what we had already put in place for our programs. This is pre-COVID. We had some real estate opportunities. Post-COVID and post-merger, we have even more real estate opportunities. So this is going to be one of the upsides that we'll be able to achieve. So post-COVID, we're doing some reengineering, we call it reimagining, how we're going to work with less office space. Some people that might work from home permanently, some that will be in the office in a hybrid model. And then when you take the -- that's -- some of that's in the $120 million. And then there's others -- some other real estate synergies we'll get from merging with IHS Markit that will be in the $480 million. But real estate is one of those other categories.

Got it. And then I guess just switching gears on China. Maybe just an update on the China strategy, how big that could be over time. Is there anything from a political standpoint that sort of impacts your view on China going forward?

Well, so first of all, we are really pleased about the progress in China. And you've probably heard me say before that as of right now, I put a lot more emphasis on nonfinancial KPIs. We've now issued 36 ratings since we started the business. It's -- and there's a very strong pipeline. We've literally visited thousands of customers to talk to them about our methodology, about our approach. And we're seeing from that point of view, so if I looked at the nonfinancial KPIs, the quality of our team, the quality of the interaction we're having, the number of clients that we're meeting with, the number of clients that attend our seminars and our webinars when we issued a new rating. Recently, we did a what we called a desktop initiative and looked at 3,000 Chinese companies to see how their -- what the ratings distribution would be across our rating scale for all these companies in China. It's received a really high level of attention, especially since there were some companies that recently defaulted that were AAA companies by other rating agencies. So there's a lot of very heightened interest in what we're doing. And we've been very fortunate that, of those 36 ratings we've done so far, they include financial institutions, structured finance, corporate sector. We've rated companies all the way from BBB to AAA. So we've been able to show a breadth of rating scale, not just the typical Chinese ratings of AA and AAA. Finally, you asked about the political environment. I've been quite active in the Chinese -- and with the Chinese policymakers in different forums and also listening a lot and watching a lot. We continue to see very encouraging signs from the financial regulators in China. They're very interested in setting up a market where they have adequate capital to have a sophisticated pension system, so long-term capital for the pension system. They know that they need a bond market for that. They know they want to have a bond market that's got transparency. They know they need asset managers. They know they need foreign banks to be involved. They want to be more involved in the global financial markets. So despite what sometimes you might hear on the political front, on the financial front, we continue to get very encouraging signs about China opening up their markets, making them more competitive and making them more transparent, all of which really plays very well to our proposition.

Got you. And just from a technology standpoint, Doug, how big of a game-changer has Kensho been? I know IHS has their Data Lake. But are the benefits of that still rolling through? I know that it sort of impacts all your segments. But maybe if you could just walk us through how much of a benefit that's been. Because it's sort of a nontraditional-type transaction that you did.

Yes, it really was. And when we first looked at Kensho, we had originally invested in a B round of a fintech company. We invested in B round, and so we got to know them. And as we started thinking about the scenarios of the future where AI and machine learning would be embedded in decision-making of the financial markets, we realized that it would be much more valuable for us to own that IP and to have that kind of a really high-quality team of engineers and mathematicians and physicists and computer scientists in our team with us and give them access, like a candy store, to all of the data we have. So Kensho has been instrumental at an operating level of helping us do things like link data faster, build new tools for linking information across different platforms with different types of identifiers, et cetera. So sometimes, we don't talk about some of the ways that they've helped us be much more efficient at an operating level because we talk a lot more about all they've been able to do that helps us interface with our clients better, things like Omnisearch in the Market Intelligence platform, the way that we've taken what's called the Market-on-Close at Platts and be able to move much faster to the market with an ultimate price and with research. We've come up with ways that we can extract data from PDFs and maintain the integrity of that data, so it goes straight into a spreadsheet and people can use that data. Kensho Scribe is what we use to now transcribe earnings calls. So there are so many things. One last one I mentioned in the Index business, we now have these Kensho New Economy Indices. They had some when they came, and we've continued to build those out. And they also have a lot -- there's a lot of interest in the Kensho New Economy Indices. So across the board, Kensho has been a really valuable partner for us, the value that they bring across all the divisions. And when I talked about a candy store, there's a new candy store that's going to be coming in. And when we can put together the Kensho and the Data Lake and give the access to the IHS Markit business, I think there's going to be a whole new set of other innovations that will come out of that.

Great. You touched on China, Doug. In Europe, one of your peers talks about sort of deleveraging banks sort of essentially moving more towards bonds versus loans and maybe becoming a lot more like the U.S. What's sort of your view there? Do you think that, that's something that -- it's been pretty slow to play out. But do you view that as sort of something that's material or something that will happen longer term?

Yes. I view that as definitely -- if I looked at it on a trend line, I think Europe is becoming more and more of a capital market as opposed to a bank market. But it's not -- but the trend line is not straight. It's gone up and down. And when it goes up and down partially depends on rates, the ECB's liquidity programs. We saw after the financial crisis, that the ECB put in place a whole series of very accommodative interest rate policies and bank policies to help bolster banks' balance sheets. And they provided so much really cheap liquidity, that the banks were able to use their balance sheet for almost everything they needed. So I watch very carefully what are the policies in the ECB for credit expansion and for how much of the credit expansion goes through the banking system as opposed to the capital market system. But if you then go look at it structurally, Europe is -- has an aging population. They need to have more and more pension systems, pension funds. You have people that are retiring that want some sort of a combination of fixed income and equity products so they can have them for their future, et cetera. So I see that Europe is a growing market for us. It's one where we've done well. And it also benefits all of our businesses as it becomes more and more of a capital market. But trend line, yes, but very volatile around how and when does it become that kind of a capital market.

Great. So with that, again, to ask a question, it's going to be the upper-right box. I'm going to hand it off to my associate, Mario, to just run through some of the questions we've been getting through the audience. And then we can come back to me once we run through all those questions if there's time. So Mario, go ahead.

So first question is if the customers and DOJ are concerned about taking IHS data that was available stand-alone and is now making it available only as part of the Market Intelligence or CapIQ platforms, how do you remedy that?

Well, first of all, that's a speculation. I have no idea if that would -- so I don't want to answer that question if I know anything about it. That's a speculation. But what I can tell you is that everything that we've seen so far or we believe that the DOJ could raise, we believe we could remedy. And then the second part is that almost all of the data that we provide across S&P Global is also provided through other third-party platforms. So Ratings data goes through multiple platforms. Many of the data, information that we have, for instance, in the Index business goes through multiple platforms. So we're not looking at business models where there's ever any sort of a tie-in between our business and across businesses where it's the only way you can get something.

Great. And I'm actually going to combine these 2 questions because they're both regarding the combination of SPGI and INFO and also on pricing. Do you mind discussing price discussions around products for the pro forma company? IHS gave pricing concessions to their energy group. How will that roll through the pro forma business? And can you please talk further about what you intend to do on enterprise-wide pricing with INFO and -- versus what they're doing now?

Yes. So first of all, let me start with the enterprise pricing. The enterprise pricing right now is a supposition that we have, that we would possibly or potentially be able to apply to some of the IHS Markit data sets and some of the data sets that we can put into the Market Intelligence platform. When it comes to the first part of the question, as I mentioned at the beginning of the call, we're incredibly respectful of best practices of not crossing firewalls. So when it comes to pricing, we're still not engaged at all in any information that's commercial information across the 2 businesses. We want to make sure that we are doing all of the right things in the meantime. So I don't have any comments about pricing strategies yet.

Got it. And next question is, you've been successful in investing where the puck is going with ESG and machine learning with Kensho. Are these the 2 areas that the majority of your investment is currently made? And unrelated, do you have any comments on the strength of issuance of convertible bonds? Is that market large enough to help the Ratings business?

Starting with converts. It's not that big of a business to -- right now to make a difference. But if it all of a sudden became in vogue, it could be. It could be something that drives issuance. Going to your other question about where the puck is going. Obviously, ESG is one of those that we're -- we think is important, and Kensho. There are a couple of others that I mentioned very briefly at the beginning of the call. One of those, I would say, relates to private company information. And this would be a combination of credit information, ESG information. It has to do with supply chains. Anybody that's involved in looking at supply chain analytics and wanting to know what is the credit risk across our supply chain, what can be the potential environmental impact across their supply chain, these are areas that are still just starting to take off. And we think that between the combination of IHS Markit and ourselves, we can grow quickly in that area. It's one that we see as very important. And then there's another area that fits kind of in between ESG and our resources business, which is energy transition. So I think of climate and energy transition as a separate -- kind of think about 2 circles of Venn diagram, they overlap. So there's a big overlap between ESG and energy transition and climate. But climate and energy transition are, in their own right, also very large businesses that we will be working on and investing in. So those would be some of the biggest ones. It's the private markets, supply chain, ESG, everything that we just talked about with energy transition. I guess one final one I'd mention, that I don't know if we've -- how we've dimensioned it yet, but one of the other attractive things about the merger with IHS Markit is fixed income indices. And we do think that there will be a lot of growth. Even partially to Hamzah's question about European markets. When you start seeing new types of indices, which will be multi-asset class indices, age-based indices, different types of factor indices, et cetera. So we think that that's another area that will be a lot of growth that we're also going to be better positioned for.

Great. And then staying on ESG, how much of a lead does MSCI have in the ESG space? Are there any structural reasons that would prevent you guys from catching up to them?

Yes. They have some lead in indices and some -- they've been embedded in a few systems here and there. But the way I've normally talked about this, I think that we're in the second, maybe heading into the third inning. So sometimes, having a lead in the second inning doesn't matter much in baseball. And -- but maybe even -- I might even answer the question a little bit different these days. The field is still being defined. Even though I've been saying all along we're in the second or third inning of a baseball game. But the truth is that, if we are in a baseball game, we still don't know how big the field is, how far it is to hit a home run, how many players are on the field. The standards are still being set. And so we think that there's room for multiple players. It's not just a winner-take-all market. There will be multiple players, and we want to be one of the -- one those lead players in this game.

Perfect. Next question. When considering your guidance of 6.5% to 8% organic growth, 200 bps of margin expansion, teens EPS growth, what do you think are the key upside and downside risks to the portfolio -- I'm sorry, to your guidance?

Well, we always know that one of the areas which has more volatility is always going to be Ratings. I think that's why Hamzah and Mario are always very astute to that and keeping track of that quite closely. Our businesses last year and this year are -- the businesses are generally subscription-based or some sort of recurring revenue-based businesses. And even a very large part of Ratings revenue is recurring as well. So we think that the recurring business, the recurring nature of our business, gives us strong ability to have a strength in the underlying factors of the guidance. We also, obviously, will look very carefully at what's happening with the recovery from the COVID. What will be the economic impact around the globe of growth rates? How fast will economies be able to come out of COVID as vaccinations take place, as herd immunity hits, starts kicking in? So I always look at the macro factors like growth. And this year -- last year and this year, clearly, COVID is at the top of the list of factors that could change some of the directions of the economy.

Great. And then, I guess, looking at the Financial Services business with IHS, excluding the Index business, where does that fit within your portfolio?

Yes. The Financial Services business will be put together with our Market Intelligence business. It's the same client set, generally speaking. Our Market Intelligence business brings actually a very large set of corporate customers, although because the Financial Services business that IHS Markit is almost exclusively financial services customers. But the product sets are quite similar. The data sets are quite similar. We have a platform which will be a differentiation for the IHS Markit businesses, and IHS Markit has software and workflow tools which will be differentiating for us for Market Intelligence. So those 2 businesses fit together quite well, especially when you go to the core of data sets, of data extraction, of how you put together a core information, how it gets linked, et cetera. So a lot of synergies across those 2 businesses. And that's the way they will be managed.

Great. And that kind of goes nicely with this other question we just received for your vision for Market Intelligence. Do you want to become a Bloomberg-type platform? Or I guess, what do you expect to do with Market Intelligence, longer term?

Yes. So first of all, we see our advantage in Market Intelligence is one thing I just referred to is the breadth of our customers. We're not -- we don't depend on a trading floor customer. Our customers range from people on trading floors, to risk managers, to corporate CFOs, to corporate treasurers, to regulators, to government officials, to academics. So we've got a wide breadth of customer sets. And they use it for risk management, strategic planning, for investment strategies, for trading strategies. Bankers use it to support their analysis of mergers and acquisitions transactions to pitch to clients. Analysts use it to look at market comparables across different portfolios, et cetera. So by having a really strong set of core data, which is the way it's linked; the way it's cleansed; the way it's consistent; the time series that go back, in some cases, up to 50 years, gives the ability for this data to be used in so many different ways. And increasingly, a lot of the -- a lot of our data is not being used by people on screens anymore, it's being used by machines. And so this is where the Data Lake and market -- our Marketplace platform becomes so important because we can also accompany the growing trends of people that are using models, algorithms, and using different ways to make decisions. So our view is that what we're all about is being embedded where people make decisions. And we want to be embedded where people make financial decisions to help them make them with confidence.

Great. And then kind of keeping with the IHS questions. What are the prospects of the non-Opus energy business?

Within IHS?

I guess once the company is combined. On a pro forma basis, what do you guys expect to do with that non-Opus energy business? I don't know if the person is asking if you plan to sell it? Or how you plan to integrate it into Platts? Or kind of just what are your future plans for that non-Opus side?

Yes. So on -- I would mention a few things. First of all, when we look at the Platts business and the resources business at IHS Markit, it's much broader than just energy. One of the things we're excited about is that we already have a very strong franchise of price benchmarks within Platts. And we've been expanding those price benchmark beyond just energy into other things, whether it's ESG-type things like renewable energy, battery metals, ag products, recycled plastics, et cetera. We also have a very large news and analytics business within Platts. But one of the things that's really interesting, is when you look at the 2 businesses, the IHS Markit resources business is more of a research business and data business. Platts is more of a price benchmarking business. So you put the 2 together, and it's going to be a much stronger balance of -- much better balance of both price benchmarks and news and research and analytics. So we see that we can continue to play within the energy business the way we do now with price reporting, with the benchmarks. We can accompany and help lead with research and news and analytics about the energy transition. We can also continue with price benchmarks and news and analytics around alternatives and move into other agriculture, energy transition, et cetera. So we think that there are businesses that we can put together. They're very complementary because of the price reporting aspect of it as well as the news and analytics part of it. So we're very pleased with what we can do with those 2 businesses together.

Great. And then could you discuss the larger drivers behind how you intend to capture revenue synergies? Is it mainly driven by penetration, larger wallet share of existing customers? Or is it expanding -- and -- I'm sorry, or is it the expanding of the existing customer base?

It's all of the above. We have looked at, so far, as I mentioned earlier in one of the other questions, right now, we're limited on exactly what we can see in terms of customer relationships, customer information, profitability, pricing, et cetera. But based on understanding the needs of our clients, we see multiple ways that we can build revenue synergies. One of them is just basic cross-sell, finding the customers who are -- need information or have needs that are not being fulfilled by one side or the other. So there's basic cross-sell is one of the revenue synergies. Another is new products, putting together data and analytics in new ways to create new products and new services. So that would be another. Another one is geographic expansion. We know that there are certain products or services in IHS Markit that might be more valuable in Asia than currently than where they are or in Europe. Or vice versa, some of the Platts or Market Intelligence products we can sell through the IHS Markit channels. And then there is what we think about in the longer run, what would be some more transformational opportunities, especially with Marketplace, Kensho and the Data Lake, to have some very innovative, transformational products and services that we can provide to the market. So it's all of the above. We have thoughts and plans around all of those. And from my point of view, I can hardly wait until we can close so we can get over the firewall and start executing.

And then kind of touching on your cash balance. Can you talk about the large cash balance you showed on your slides? INFO has a similar buildup. What do you guys plan to do in addition to the normal 85% free cash flow return? Is a large ASR an option?

So when we look at this transaction, obviously, we're quite cautious, obviously, about using our cash. And we cannot commit right now to any ability to either do an ASR or repurchase shares. Sometimes, we have blackout because of earnings. We have material nonpublic information related to something. So up until the time we merge, we have not made any commitment that we would be able to necessarily buy back stock. Currently at S&P Global, we've had a guideline target, which would be to return 75% of our free cash flow to our shareholders through dividends and through stock buybacks. And we were not able to do the stock buybacks over the last 9 months or so, and so you've seen a buildup in cash. The idea would be, as we did the modeling for this case, as you just mentioned, our modeling would take us to a target of 85% return of cash of the free cash flow. And we will start out of the gate with a large cash balance as well as the ability to refinance some debt and also potentially change our capital structure within the guidelines that we've already provided. It would be our estimation that we would apply the new targets for the 85% cash flow as soon as we could. Whatever the form of doing that would be, we haven't decided. We don't have any commitments on that. But that would be the intentions, and that's where our thoughts would be.

And the last one for now, unless any more roll in. When INFO reported recently, they called out capital markets as driving financial services strength, including Ipreo. How do you think about the cyclicality on any front of that business versus your more true subscription Market Intelligence business? Should we expect combined Market Intelligence to follow more Ratings-level issuance trends? And the same question on the Platts side when you add IHS energy into their must-have benchmarks, like Dated Brent, where the only real question is, are the customers healthy enough to price?

Yes. So I would -- what I would look at, when we did the pro forma analysis on the companies based on publicly available information, and then what we were able to look at in due diligence, what we see is that the overall pro forma of S&P Global is going to change our profile, from a company that's approximately 60% which is based off of recurring revenue, to north of 70%. So the profile of what's recurring revenue, whether that's subscription or some type of predictable revenue, is going to change. And it's going to actually move further in that direction. So despite what you mentioned are a couple of products here and there that might have some more market volatility in them, we think that the overall profile of S&P Global post the merger will have a more of a higher recurring revenue. There will be a slightly lower profile for Ratings. So Ratings is today is about 50%, it will drop to more in the line of around 40%. So the overall company will have more of a recurring revenue profile overall after the transaction.

Great. Hamzah, that is all we have for now. I'll turn it back to you.

Okay, great. I guess, Doug, when you look at the Index business, is there -- and you talked about fixed income with IHS. Is there an ability to grow that business more internationally? I know you're more levered to the U.S. And then specifically within the Index business. We used to talk a lot about fee pressure, and a lot of that talk has gone away because volume growth offset a lot of that. So maybe just talk about some of the dynamics in Indices that you see and how you can grow that business post the IHS deal.

Yes. There's definitely a few growth drivers there. Obviously, one is just the continuation of the move from -- shift from active to passive or from active to ETF structures, where we benefit from that. Even sometimes if the flow initially leaves active and moves into passive in an asset class that we don't have, it still eventually, when it goes into an asset allocation model, eventually, we benefit from it. But by benefiting from it in the past, it's been because we have the major complex of large-cap U.S. equities. Over the years, we've built up relationships with 17 international exchanges, and that's something that we're going to start doing more work with. So in Mexico and Argentina and Australia and South Africa, in markets around the world, we have these exchange relationships to help them manage their index platform within that country. And we think that there's an opportunity for us to use that in new ways. When you bring in the fixed income business from IHS Markit, that gives us the ability to now be a major player in fixed income indices, which is a combination of data as well as the actual asset management fees themselves. We think that the relationship with CME is critical and that it's given us the ability for CME to monetize derivatives, so exchange-traded derivatives. And what we see is the products that go through there, we think there's more upside in the long run through other types of -- some of the other types of benchmarks. ESG is another growth area in the Index business. There is a clamor for more and more ESG-oriented funds or ETFs or indices. And ESG is 3 letters, but that could manifest itself in so many different ways. It could be more of a climate-oriented ESG portfolio. It could be more of a social or an S portfolio. It can be an impact portfolio. So we think that the ESG field is going to be another one that, over the next few years, will have a lot of growth. And we have, as a foundation, the RobecoSAM data sets that -- so we have the SAM CSA, we've got the Trucost data, we have increasing number of evaluations which we can use to also incorporate into ESG. So there's many factors that we can look at for the Index business which will be growth drivers for the future.

Got it. Just on the issuance side again, Doug. On the structured finance side, have you gained all the share back that you guys had lost historically? So just any view as to your market share and structure, or whether there's still opportunity to capture more share there.

Well, the structured finance market is one where there's been -- if you go back from the financial crisis today, there are more players than there used to be. And it's actually probably positive that there are. It means that there's more opinions out there. Our -- when we look at our penetration, it's about the same as it's been the last couple of years. We -- once we got back in the market on CMBS, and as we've been able to ensure that we have the highest-quality analytics, the highest-quality research, that's what the market cares about. And so that's what we look at. We look at the quality of our research and the quality of the analytics. And as we've just come through the COVID pandemic, that was a major test for our criteria and the quality of our criteria, to see how would our -- and this is across the entire rating agency. How did our criteria hold up in a major shock, a major shock, to the global economy? And fortunately, it was a test that we passed. We were able to -- if we would have been told there was going to be a pandemic and we would have had to predict, based on very robust analytics, what markets would be impacted and what impact it would have on ratings, I think that we were able to come through this in a way that, that -- those were the factors which were hit. So in this pandemic, it was airlines and leisure companies, hotels, certain types of industries that had the biggest impact. And that's where we saw the downgrades. And so it was something that we just went through a major, major economic impact. Ratings came out of it with flying colors. The regulations that we've been subject to the last 10 years have actually strengthened the industry. So I think that to the core of your question, what's important is that we focus 100% of our efforts on the quality of our research, on the independence and how we can make sure we're serving markets in a way that they can actually take what we have and then embed it in how they make their own decisions.

Got it. And just sticking with sort of issuance. When U.S. tax reform happened under Trump, it created a bit of a headwind, and you guys spoke about that. And then it dissipated. With the Biden tax raise, does that have any impact on issuance, do you think? Obviously, it's yet to come, and just curious what your thoughts there are.

I haven't seen anything yet that's in there that could potentially impact issuance. At the end of the day, these little things that sometimes hit issuance one way or the other, in the long run, the #1 correlation with issuance is economic growth, economic activity. So as long as what we see is growth and economic growth, as I saw on a trend line, that's what drives issuance in the long run, along with what we talked about a little bit earlier about Europe as well as different economies around the world move more from being banking markets to capital markets. That's another key driver. Interest rate levels and spreads are also a driver, but the #1 correlation is economic growth. So when we look at potential plans coming out of Washington, we will study to see what will be the economic impact. Something like infrastructure. If there is an infrastructure bill, depending on how it gets paid for, I would imagine there's going to be a lot of construction, a lot of new investment. You'll see a lot of companies that are going to be needing to like use Caterpillar tractors and other types of equipment, depending on what type of heavy infrastructure it is. So there be a lot of investment. A lot of investment will drive more issuance. So we'll look at all the factors to determine what that -- what kind of impact it could have on issuance.

Got it. We actually have 2 more questions from the chat lines. So -- and so Mario, we're going to go to you. And then we're almost out of time, so then you can come back to me and we can close.

Sorry, I was on mute. The first one's pretty straightforward. What's the current best estimate for closing time for the IHS deal?

Still some time in the second half of the year.

Okay. And the second one is also related to the deal. IHS Markit has a much lower percent of their employees that are in low-cost locales versus what SPGI does. Is that one of the opportunities for cost synergies over time?

That is a -- that's definitely one of the areas that we will be exploring. We think that the growth, the attrition, et cetera, well, one of the ways we can absorb that will be in offshore and lower-cost locales.

Great. And that's all we had from the chat lines.

Okay. I'll ask one more question. And then, Doug, if there's anything in closing that you want to touch on that we didn't hit, that would be great, too. I guess, do you see management incentives changing post the IHS transaction? Sometimes, when you see organizations do large deals, they will tend to change the KPIs. Do you foresee that happening here? Or it's sort of a wait and see?

Yes. Well, first of all, at S&P Global, our management team has a set of KPIs that we've developed over the last 5 or 6 years, which include -- in addition to financial metrics, we also include customer, operational, people metrics so that we are very much aligned with what are all of our constituents and our stakeholders that we want to make sure we're delivering for. And so we want to ensure that we can continue with the system along there. But clearly, integration and success of the merger is going to become one of the most important KPIs that we're all going to be collectively working towards. So that will get incorporated. When it comes to the actual mix of pay of cash versus stock versus how we manage that. Clearly, we'll make a few changes here and there. I don't know what those -- I haven't -- can't anticipate what they are yet. But we're going to want to make sure that the management is aligned. We align our interest with our shareholders, we align our interest with other key stakeholders, so that we can have motivated employees, satisfied customers. These are the things that drive growth in the long run. And so we'll continue to have those sorts of metrics in our compensation plans. And the mix might change a little bit, but nothing I can really contemplate exactly what it will be yet. But as I said, having an approach to being aligned around success of the merger will be one of the most important ones that we include in our new KPIs.

Great. So with that, Doug, in closing, anything else we didn't ask here, or the audience didn't ask, that you wanted to touch on that's important?

Well, let me just thank you again for the invitation today, Hamzah and Mario. You've always asked great questions. It's always great to be with you. We're very excited about what we can bring together. I -- the question came in about skating to where the puck is. We believe and we hope that we can be identifying what the markets look like in the future. And for us, it's quite important to be serving the markets that are changing. We want to serve the markets as best as we can today, but we also think that we need to stay on the cutting-edge of delivering what all of you need. The people on this call are people that are at the cutting-edge of thinking about the future of financial markets. And we want to be able to help serve you in the future. And this is where we think the breadth, the scale, the opportunities to serve these different markets together are going to create a lot of value. So we're pleased with the progress. We're pleased with how our company's done the last 10 years, last 7 years, last 5 years. And especially hope that we can take all of that discipline and that approach and put together an even stronger company for the future. So thank you again for the invitation today.

Thank you, Doug, and thank you, everybody, for joining us. Hope you have great meetings at this conference. And also, have a safe rest of the week. Thank you very much.