Posted by: Aaron Pressman on September 20, 2007
Talk about timely - with all the world worried about excessive risk taking, one of the premier risk management firms just filed to go public. Riskmetrics Group, which started as a division inside of JP Morgan back in the early 1990s, sells software and services that let pension funds, hedge funds or corporate treasury departments essentially outsource risk management. The initial filing says the company intends to raise $200 million but doesn’t give a stock symbol or price per share range. Credit Suisse, Goldman Sachs and Bank of America are listed as lead underwriters. Apparently, risk management is becoming a hot IPO trend, as MSCI, which owns Riskmetrics competitor Barra, filed to go public in August.
Riskmetrics, Barra and a few others in this niche fill an obvious and glaring need. By specializing, the companies can spend far more on developing the best risk management tools and recruiting the brightest minds in the field than any fund or company could on its own. Riskmetrics claims to have as clients 74 of the 100 largest investment managers, 31 of the 50 largest mutual fund companies, 34 of the 50 largest hedge funds, each of the 10 largest global investment banks and 17 of the 30 OECD central banks, according to its IPO filing.
In addition to risk management, the company has expanded by acquisition into the also hot field of shareholder activism. In January, it paid $543 million (including borrowing $425 million) to buy ISS, one of the premier shareholder research firms. Whenever Carl Icahn or Nelson Peltz starts agitating to throw out an underpeforming company’s board of directors, shareholders turn to ISS for an analysis of who is right. With the success folks like Icahn and Peltz are having, that’s surely a growth industry as well.
Riskmetrics’ initial filing doesn’t include an expected share price range, so it’s too soon to tell if the deal will be a good one for investors. Combining Riskmetrics results for 2006 with those of ISS, on a pro forma basis, the company would have had revenue of $205 million, operating income of $26 million and a net loss of $5 million thanks to hefty interest payments on the debt used to pay for ISS. Since some IPO proceeds will be used to pay down debt, the stock should benefit from a quick jump in profits as debt costs fall.