Inside the biggest M&A deal of 2020, where in-person meetings were key to establishing 'real trust' and hammering out a $44 billion all-stock acquisition

  • The lead up to finalizing S&P Global's $44 billion all-stock deal for IHS Markit included an in-person meeting with executives from both sides to help get the deal across the line, according to two sources familiar with the situation.
  • Both sides took precautionary measures in light of the coronavirus pandemic before meeting in a rented boardroom in Connecticut this fall.
  • Dealmaking has largely gone digital in 2020 due to lockdowns from the coronavirus pandemic.
  • "You need real trust for a deal of this size," one banker who work on the deal said. "It's not a cash deal where you write a check and everybody goes away and says 'Thank you very much.'"
  • Visit Business Insider's homepage for more stories.

Virtual dealmaking has become de rigueur in 2020, but when $44 billion is on the line, video calls can't always replace in-person meetings.

Indeed, when top executives from S&P Global and IHS Markit were closing in on getting a deal over the line between the two firms, their respective execs agreed that a private, in-person meeting would help both firms' top brass to foster the trust and goodwill to push the transaction forward, according to two sources who spoke to Business Insider under the condition of anonymity to describe the firms' deal-making process. 

S&P Global's $44 billion all-stock deal to buy for IHS Markit, the largest acquisition of 2020, was given a push when the firms' CEOs — S&P's Douglas Peterson, and IHS Markit's Lance Uggla, accompanied by their respective deal-teams — met face-to-face in a rented boardroom in Connecticut, according to one source familiar with the situation. The meeting, which took place this fall, included precautionary measures from both parties in light of the coronavirus pandemic, both sources said.

While the magnitude of the deal certainly complicates things, the fact it was an all-stock transaction makes it even more tricky. Instead of simply handing over cash, shareholders on both sides of the deal are tied to each other after the fact because of the use of company stock as currency.  

Goldman Sachs served as lead advisor to S&P, along with Citi and Credit Suisse. Morgan Stanley was IHS Markit's lead advisor, in addition to Barclays, Jefferies, and JPMorgan.  

Uggla flew to the United States and quarantined for two weeks prior to the meeting, the source familiar said. As conversations about an S&P and IHS Markit merger were heating up, the respective deal teams "felt that a meeting in person would be extremely beneficial to build trust," the source added.

At the office space in Connecticut, the small teams "were able to talk in person while keeping their social distance in compliance with local guidelines," this person said.

The other source, a senior banker involved in the deal, said the meeting helped both sides to understand how they could work together.

"Where can we spend more? Where we could perhaps be more efficient? What sort of new product offerings can we think about?" the banker said. 

"I think a lot of that brainstorm was important in terms of, one, a better understanding of what the totality of the opportunity set could be here; and two, certainly just from the building a camaraderie," the source added. 

Read more: Here's how S&P Global's $44 billion IHS Markit deal will transform the supply chain for financial data — and which players need to make a move next

That's in contrast to the precedent set by a socially distant 2020, in which bankers have hammered out deals mostly virtually.

That was the case of the recent announcement of the intended acquisition of the US business of Spanish lender BBVA by Pittsburgh-based PNC Financial Services Group. That deal, in keeping with 2020's overarching customs, was done mostly over Webex and Microsoft Teams, as Business Insider has previously reported.

More broadly, dealmaking has relied on virtual meetings and management presentations in lieu of face-to-face conversations in light of the pandemic. And with bankers grounded due to travel restrictions and concerns over the disease, firms have gotten creative.

CNBC recently reported that Goldman Sachs has been flying drones over physical sites its clients are interested in purchasing, like railroads and shipping ports.

However, in the case of the S&P Global and IHS Markit transaction, the ability for executives to see one another in person did contribute to creating more understanding for both parties, the banker said. It's a sign that the old rites of dealmaking have yet to be fully extinguished, even if they admittedly don't rise to the same level of wining and dining of pre-COVID days.

"Ultimately I think you need real trust for a deal of this size, which is again a stock deal," the banker said. "It's not a cash deal where you write a check and everybody goes away and says 'Thank you very much.'"

Read more: Boutique banks like Evercore and Moelis are saving tens of millions in travel and entertainment costs while dealmakers are grounded. Here's what that newfound efficiency could mean for the future of business travel.

There are pros and cons to S&P's all-stock deal with IHS Markit

The pandemic hasn't just impacted how deals are reached. The uncertainty of the financial markets has put a spotlight on how they are structured, particular if company stock is involved.

While S&P's bid for IHS Markit was an all-stock transaction, several others in recent months have have been all or partly cash. PNC's bid for BBVA's US arm in November was an all-cash deal. Morgan Stanley's planned acquisition of Eaton Vance, meanwhile, was cash and stock. Salesforce's $27.7 billion deal for Slack, announced on Tuesday, was also a cash-and-stock deal. 

For IHS Markit investors, S&P's business deals in industries stockholders might not have necessarily wanted exposure to.

"If you were an IHS Markit shareholder, you were buying this because you thought this was going to be one of the larger consolidators over the next five years," Jeff Silber, a senior analyst at BMO Capital Markets, told Business Insider. 

But for S&P shareholders, integrating IHS Markit offers exposure to new lines of business and a good chunk of recurring revenue, which is always highly valued and can reduce risk in a deal, Rajiv Bhatia, an equity analyst for Morningstar whose coverage includes S&P, told Business Insider.

Diversifying S&P's exposure could prove particularly beneficial in the coming year, Silber said. 

"S&P stock price has historically been tied to debt issuance trends and debt issuance is expected to go down next year because we had such a great year this year," said Silber. "Maybe this transaction helped them decouple that a bit."

And while that's not the primary reason that the two firms are doing this deal, "I think it could be an ancillary benefit," Silber added. 

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