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Moody's (MCO) Closes Buyout of Climate Risk Modeling Firm RMS

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Moody's Corporation (MCO - Free Report) has closed the acquisition of RMS, a pioneer in providing climate and natural disaster risk modeling and analytics. The $2-billion deal was announced last month.

The acquisition is expected to fortify Moody’s insurance data and analytics business to nearly $500 million in revenues. The move comes as the rating agency seeks to boost its global risk capabilities, in order to cater the new developments in risk assessment.

Notably, RMS caters to 120 countries with its 400 risk models, serving the global property and casualty insurance (P&C) and reinsurance industries. Its services help organizations measure and manage their climate and natural disaster risk modeling.

At the time of the deal’s announcement, certain financial benefits had been anticipated. It was expected that RMS will generate up to $150 million of incremental run-rate revenues by 2025, as part of the Moody’s Analytics platform. Moreover, the deal had been projected to be accretive to Moody’s diluted earnings per share in 2025 (on a GAAP basis). Excluding the purchase price amortization, it was estimated to be accretive to adjusted diluted earnings in 2024.

This transaction capitalizes on Moody’s and RMS’ complementary customer bases, and competencies in the life and P&C insurance and reinsurance units. While Moody’s facilitates strong risk and finance solutions for insurers, RMS accommodates a wide spectrum of climate and catastrophe risk modeling solutions for insurers, aiding them to better analyze, assess and estimate risks.

Thus, RMS will strengthen Moody’s integrated risk assessment strategy for customers in the insurance industry through greater innovation and amalgamation of both companies’ crucial fortes and services, with proficiencies across climate, cyber, commercial real estate and supply-chain risks.

Our Take

Over the years, Moody’s has grown meaningfully through several strategic acquisitions, which have provided it with increased scale and cross-selling opportunities across products and vertical markets.

The firm continues to pursue growth in areas outside the core credit ratings service. In fact, it has been increasing exposure toward the banking and insurance industries, and is also diversifying into the emerging and fast-growing professional services and enterprise risk solutions (ERS) businesses. Improved mix and lower-risk nature of its product portfolio is expected to continue boosting revenues.

So far this year, shares of Moody’s have gained 30.8%, outperforming 19.2% growth recorded by the industry.

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Currently, Moody’s carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Competitive Landscape

Many finance companies are now coming ahead and participating in environmental, social and governance (ESG) investing. In July 2021, Affiliated Managers (AMG - Free Report) announced that it will acquire a majority equity stake in Parnassus Investments, one of the largest sustainable investing fund managers in the United States.

Similarly, The Blackstone Group Inc. (BX - Free Report) inked a $1.4-billion deal to acquire Sphera, a pioneer in providing ESG software, data and consulting services. The move was part of the private equity giant’s efforts to directly impact the transition to a low-carbon economy and provide ESG-focused investment opportunities.

This June, JPMorgan (JPM - Free Report) signed a deal to acquire San Francisco-based financial technology start-up, OpenInvest, to bank on its ESG skills with 55ip's tax-smart investment strategies, in order to offer personalized solutions to clients “that are values-aligned and tax-efficient.”

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