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Genstar makes 2.5x in 3 years as it sells ISS to Deutsche Börse

Sale of US voting and ESG house to German exchange signals huge shift in EU ESG business and finance reality

Deutsche Börse, the German stock exchange group, has bought ISS, the US proxy voting and ESG data firm, in a move that underscores the regulatory charge of ESG on mainstream financial services in the EU. 

The owner of the Frankfurt stock exchange has taken an 80% stake in ISS from Genstar Capital, its private equity owner, for circa $1.8bn, valuing the total company at $2.27bn.

Genstar and ISS’ current management will continue to hold approximately 20% of ISS, and CEO Gary Retelny will continue to lead the company.

San Francisco-based Genstar has made more than 2.5x on its investment in ISS in just over three years, a sign of the increasing value being attached to ESG assets.

It bought ISS, in partnership with management,  in 2017 for $720m (€599.5m) from Vestar Capital, a New York-based private equity house.

Vestar had acquired the business for $364m in 2014 from MSCI, which had owned ISS since acquiring the RiskMetrics business for $1.55bn in 2010 – though it was never a core part of the deal for MSCI.

Deutsche Börse is the parent company of Qontigo, the index and analytics company, which includes the Stoxx indices, comprising a suite of sustainability benchmarks.

The German exchange said ISS’ data distribution would also compliment its post-trading services company, Clearstream, in the investment funds space. 

ISS is expected to generate net revenue of more than $280m in 2020 with an adjusted EBITDA margin of approximately 35% pre-transaction effects.

Deutsche Börse said it expected revenue synergies to result in an additional €15m EBITDA by 2023.

It will report ISS’ financial performance as a separate pre-trading segment within the Group.

Stephan Leithner, Member of the Executive Board of Deutsche Börse AG, responsible for the Pre- and Post-Trading businesses, added: “ISS combines an emphasis on global corporate governance with an increasing focus on a broader definition of ESG standards, where Europe currently plays a trendsetter role.”

Gary Retelny at ISS said: “We believe that the potential combination of ISS’ ESG data and STOXX’ indices will offer clients new, powerful and innovative solutions with unique data sets that meet their evolving investment needs.”

The transaction is expected to close in the first half of 2021 subject to regulatory approvals.