Moody's Acquires CSI Global - Analyst Blog

An industry leader in the credit rating industry, Moody's Corp. (MCO) announced that it has acquired Canadian based, CSI Global Education Inc. (CSI), a premier provider of financial learning, credentials and certification. The financial consideration of the deal comes at $151.4 million (C$155.0 million) in cash.

The acquisition is expected to have a minimal impact on Moody's GAAP earnings per share (EPS) for the fourth quarter of 2010 and full-year 2011. However, the deal will be accretive to EPS beyond 2011.  The deal is subject to customary closing adjustments.

CSI will operate within Moody's Analytics, further strengthening Moody's capabilities for delivering credit training programs, research and analytical services and risk management software to financial institutions worldwide. The acquisition complements the ongoing efforts of Moody's Analytics to develop global benchmarks for financial risk management and help expand its financial education offerings.

The combination of CSI's leadership in financial education and credentials with Moody's international reach and expertise in credit risk management will help Moody's expand globally and enhance its risk management practices. With the aid of CSI, Moody's will be able to provide an enhanced analytical insight to customers.

Upon closing of the deal, CSI will continue to operate under the name of CSI Global Education. The company's management team, staff and operations will continue to be based in Toronto, management pointed out.

Acquisitions have given Moody's increased scale and cross-selling opportunities across products and vertical markets. Notably, the acquisition of Wall Street Analytics in 2009 had broadened its offerings in the Structured Finance business, thereby reducing its dependence on the mortgage business. This acquisition enhances Moody's current collateralized debt obligations (CDOs) product suite, mortgage-backed securities (MBS) and asset-backed securities (ABS) analytic software capabilities.

In 2008, Moody's had also acquired Fermat International, a leading provider of risk and performance management software. The company expects strong double-digit organic growth in fiscal 2010 from the acquisition. Incremental annual revenues of approximately $75.0 million to $85.0 million are expected by 2010.

The company's acquisition of Enb Consulting further expanded its credit and capital markets training service business, providing training programs for finance professionals with an emphasis on markets outside the U.S. As a result, revenues at Moody's Analytics grew 5.2% during 2009, amid difficult credit market conditions. Approximately, 89.0% of revenues in its Analytics business were recurring in nature in 2009, which will drive growth, going forward.

On a negative note, increased focused on acquisitions could negatively impact its balance sheet as funds paid for purchases will limit debt repayments while reducing available cash. As a result, the company's net cash (cash less debt) position was a deficit of $495.5 million as of September 2010. Furthermore, the acquisitions add to integration risks, which may dilute earnings.

Currently, Moody's has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).