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Moody's Inks Deal to Buy Bureau van Dijk for $3.3B, Stock Up

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With an aim to expand its risk data and analytical insight capabilities, Moody's Corporation (MCO - Free Report) announced a deal to acquire Amsterdam, Netherlands-based Bureau van Dijk for €3.0 billion ($3.3 billion). Bureau van Dijk, a global business intelligence and company information provider, is owned by the fund EQT VI (part of EQT, an alternative investment firm).

The deal, expected to close by third-quarter 2017, is subject to regulatory approvals in the European Union. Moody’s intends to fund the transaction through $1.3 billion of offshore cash and $2 billion in new debt issuance.

Following the announcement of the deal, shares of Moody’s closed the day 1.2% higher from the previous trading session. Also, the company shares have risen 14.8% over the last six months, as against a decline of 0.1% for the Zacks categorized Financial- Miscellaneous Services industry.

Accretive to Near-term Earnings, Long-term Outlook Raised

Following the closure of the deal, Bureau van Dijk will be integrated in to Moody’s Analytics (MA) division’s Research, Data & Analytics unit. The deal will extend MA’s reach to non-financial companies.

Moody’s projects nearly $45 million of revenue and expense synergies annually by 2019 and $80 million by 2021. The synergies are likely to be driven by elimination of overlapping data acquisition costs and streamlining product portfolio.

The transaction is anticipated to be accretive to the company’s 2018 adjusted earnings (excludes purchase price amortization and one-time integration expenses) and 2019 GAAP earnings.

Also, Moody’s revised its long-term growth outlook upward. Now, the company expects revenue growth in high single digits and earnings growth in low teens.

Nonetheless, Moody’s lowered its share repurchase authorization to $200 million for 2017 and 2018, while keeping the dividend payout ratio of 25–30% intact. Earlier the company guided for $500 million worth of share buyback for this year.

Further, S&P Global Ratings, a division of S&P Global Inc. (SPGI - Free Report) , downgraded Moody’s outlook to ‘Negative’ from ‘Stable’ following the announcement of the deal. S&P Global Ratings' credit analyst Minesh Patel said, “We expect that adjusted leverage, pro forma for the proposed acquisition, will rise to 2.8x in 2017 and remain above our 2.0x downgrade target until 2019.”

Notably, the rating agency affirmed Moody’s ratings including the ‘BBB+/A-2’corporate credit rating. It expects the company to remain committed toward bringing down adjusted leverage to below 2.0x within two years of completion of the deal.

Our Take

Moody’s cash flow and strong balance sheet positions it well to pursue growth opportunities. As of Mar 31, 2017, the company had total cash, cash equivalents and short-term investments of $2.3 billion.

Moody’s has been a successful acquirer. Over the years, the company increased scale and cross-selling opportunities across products and vertical markets through acquisitions. The latest deal is in sync with its long-term strategy to strengthen its revenue base.

Currently, Moody’s has a Zacks Rank #2 (Buy).

Some other stocks in the same industry worth a look include PJT Partners Inc. (PJT - Free Report) and Financial Engines, Inc. .

PJT Partners witnessed an upward earnings estimate revision of 11.9% for the current year, over the past 30 days. Also, over the last three months, its share price jumped 10.2%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Financial Engines’ earnings estimates were revised 3% upward for the current year, in the past 30 days. The stock, carrying a Zacks Rank #2, has risen 2% over the last three months.

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