Rating agency Moody’s has agreed a deal to acquire RMS for £1.425bn ($1.98bn) in a move that will more than double the size of its insurance data and analytics business.

Moody's and RMS

The deal follows last month’s announcement by RMS’ current owner, Daily Mail and General Trust (DMGT), that it was considering a sale of the catastrophe modelling firm.

RMS generated revenues of £242mn in the financial year ended 31 March, with an adjusted operating profit of £33mn.

Moody’s said the deal will increase the annual revenues of its insurance data and analytics business to $500mn.

For the fiscal year ended 30 September 2021, Moody’s said RMS is expected to generate revenue of approximately $320mn and adjusted operating income of approximately $55mn.

As part of the Moody’s Analytics platform, the rating agency said it expects RMS to generate up to $150mn of incremental run-rate revenue by 2025.

On a US GAAP basis, Moody’s said it expects the acquisition to be accretive to its diluted earnings per share (EPS) in 2025 and, excluding purchase price amortisation, the deal is expected to be accretive to adjusted diluted EPS in 2024.

Moody’s, which was advised on the transaction by Centerview Partners LLC and Paul Hastings LLP, said the deal will be funded through a combination of cash and the issuance of new debt.

RMS was founded in 1989 as Risk Management Software following a Stanford research project funded by insurers and led by Hemant Shah and Weimin Dong the previous year.

The group became Risk Management Solutions in 1996 and was acquired by DGMT two years later. 

In 2018, DMGT replaced RMS’ co-founder and CEO Shah with experienced Silicon Valley executive Karen White.

The change in leadership followed a challenging period for the business with its attempts to build the RMS(one) platform ultimately costing its parent company a significant amount of money, including a £58mn full impairment of development costs in 2018.

RMS has enjoyed a duopoly with its main rival, AIR Worldwide, for the majority of the past 30 years. While RMS has traditionally been the largest player in the market, AIR has enjoyed increasing success in recent years, gaining a dominant position in the ILS space as well as being the modeller of choice for several recent industry start-ups.

There has also been increasing momentum among intermediaries and carriers in exploring alternative cat modelling capabilities rather than relying on the dominant industry vendors. 

Price “in line with expectations”

DMGT said the purchase price is in line with its expectations at the time of last month’s announcement that it was considering a sale of the risk modelling business.

The deal is expected to complete in September 2021, subject to closing conditions which include regulatory clearance under the Hart-Scott-Rodino Act in the US. 

DMGT said it expects to incur aggregate costs of approximately £210mn in respect of RMS minority shareholders, incentive plans for RMS employees, tax charges and disposal fees.

In addition, a payment of approximately £60mn will be made into an escrow account as a result of RMS’ retirement as a guarantor of one of DMGT’s pension schemes.

Paul Zwillenberg, DMGT’s CEO, said Moody’s was “ideally positioned to deliver the next stage in RMS’ growth and deliver revenue synergies”.

“Consistent with our objective of delivering compelling returns for our investors, we have decided that now is the right time to monetise our investment in RMS at a premium valuation,” he said.

“The addition of RMS will help accelerate Moody’s strategy of developing an integrated risk assessment platform that will enable customers to make better decisions and build resilience. 

“The transaction represents a great opportunity for RMS’ employees, as well as for both businesses’ customers.”

RMS CEO White said Moody’s represented an “exceptional fit” for the company.

“We share the vision to bring a global, integrated risk assessment platform to our markets with the goals of deeper, more sophisticated risk insights and greater global resiliency,” she said.

“Within Moody’s, I’m confident RMS will be able to accelerate technology and model innovations while combining with Moody’s core data and analytics offerings for powerful, holistic solutions.”