S&P Global/IHS Markit sale of OPIS to test buyers' appetite for oil PRAs

London, (Quantum Commodity Intelligence) - A deal to offload an energy price publishing businesses that would clear the way for the biggest merger for two years kicked off in earnest earlier this month, but potential buyers are being put off by the initial asking price due to the nature of the assets being sold, several sources have told Quantum.

The divestiture of Oil Price Information Services (OPIS) and IHS Markit's coal, metals and mining business is actively being marketed, three sources told Quantum last week, in a sale that is intended to clear the way for a $44-billion merger between S&P Global and IHS Markit.

In a statement dated May 13, the two companies said the sale was being considered to overcome regulatory and antitrust hurdles to allow for the closure of the biggest merger since 2019 in the second half of this year.

However, OPIS generates the majority of its revenue from selling data about fossil fuels, and it lacks the full suite of energy product coverage.

That could deter buyers to stump up the significant multiples on earnings seen for other similar price reporting agencies recently, particularly as investor appetitite is favouring cleaner fuels. 

"The talk is they are looking for 20 times earnings. It's a lot for assets that are at the wrong end of the energy evolution chain," said one source. "Where's the growth?"

LPG, gasoline

OPIS and IHS's coal businesses makes the bulk of their revenue from pricing coal in Europe, liquefied petroleum gas (LPG) in the US, and gasoline, diesel and jet in the US west coast, markets which are under threat from the energy transition.

The shift for coal benchmarks has moved from west to east, as carbon prices in Europe and a glut of gas in the US means Asia will be increasingly the home for coal benchmarks – a region that has in the past yielded fewer dollars per subscriber.

And in gasoline in the US, OPIS has benchmarks in supply sectors – the so-called rack – and at retail level through its "Gas Buddy" app that helps customers find the cheapest gasoline prices.

But with electrification of road transportation set to increase rapidly over the next decade if the world is to combat climate change, the importance of the gasoline benchmarks will erode over time, albeit over decades and likely very slowly, one instiutiuonal investor told Quantum.

In theory, strategic buyers could afford to pay a premium over private equity buyers because of potential synergies, but there "will be concerns," said a second source, adding that there may be reticence from shareholders over buying companies with coal and oil in their name.

In addition, there may be fewer potential strategic buyers.

After the merger, just two companies would dominate the commodity and energy price publishing space – Argus and S&P Global Platts.

With S&P Global stating that the "divestiture is subject to further review and approval by regulators and antitrust authorities", it raises questions about whether a sale to the second biggest commodity price reporting agency could face similar concerns around antitrust.

That leaves private equity the likely destination, according to three sources.

Sanguine

Other sources were more sanguine.

"This is grist for the mill. It will get sold because it has to," said a third source, adding it is always in buyers' interest to baulk at the offer, but the business was still "very high margin" and had other non-fossil fuel assets.

OPIS has diversified into non-oil assets, lauching a carbon offset report recently, as well holding the benchmark in renewable identification numbers in the US. 

In addition, it's benchmark in jet fuel in the US is likely to be robust, given the few alternatives, one source said. 

The sale of OPIS come against the backdrop of the partial sale of Argus Media to General Atlantic (GA) in 2016 in a deal that valued the predominantly oil- and coal-price reporting business at £1 billion ($1.42 billion).

If that deal raised eyebrows, the second deal dropped jaws when Argus' value doubled in three years as GA sold half its 50% stake to a software and technology company in a transaction that meant it held 25% of Argus for essentially what was the cost of legal fees.

That deal made millionaires out of numerate journalists that wrote about price moves in wholesale coal and oil markets and propelled Argus' owner Adrian Binks into the Sunday Times Rich List above more household names such as Elton John.

S&P Global were contacted for comment.

Quantum Commodity Intelligence competes with S&P Global Platts, Argus and OPIS in providing news and data on the energy markets.