Sep 8, 2017

Buyout firm flips proxy advisor ISS

Private equity firm Genstar Capital has agreed to acquire proxy advisory firm Institutional Shareholder Services from Vestar Capital Partners for $720 million. It's a strong return for Vestar, which paid $364 million to buy ISS three years ago in a competitive auction.

Why it's a big deal: The high sale price masks some secular threats to the central role that ISS and fellow proxy advisor Glass Lewis have played in the M&A market. Not only active fund managers making their own decisions, but also giant index funds relying on ever-growing internal research and corporate governance groups. Perhaps this is why ISS revenue and EBITDA only climbed 3% during the majority of Vestar's ownership, per Moody's.

Bottom line from Antony Currie of BreakingViews: "Vestar made its money in traditional LBO-style – by changing ISS's capital structure. The $117 million of equity it injected into its 2014 acquisition, based on Moody's numbers, represented just 32 percent of the purchase price. It also paid itself a $37 million dividend last December financed by debt. Strip out ISS's borrowings and Thursday's headline purchase price of $720 million falls to an equity value of $369 million – just over three times more than Vestar shelled out, and that's not including the dividend."

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