Financial Services IPO: RiskMetrics Group

Jan.20.08 | About: RiskMetrics (RMG)

RiskMetrics Group (RMG) is a leading provider of risk management and corporate governance products and services to participants in the global financial markets. The company is expected to issue an initial public offering of its stock this week.

All quotations are from the company's most recent S-1 filings with links provided.

Business Overview (from prospectus)

We enable clients to better understand and manage the risks associated with their financial holdings, provide greater transparency to their internal and external constituencies, satisfy regulatory and reporting requirements and make more informed investment decisions. Our offerings address multiple asset classes, markets and geographies and are sold to a diverse client base, including asset managers, hedge funds, pension funds, banks, insurance companies, financial advisors and corporations. As of September 30, 2007, we had approximately 3,500 clients located in 50 countries. Among our clients are 70 of the 100 largest investment managers, 34 of the 50 largest mutual fund companies, 41 of the 50 largest hedge funds and each of the 10 largest global investment banks.

Offering: 14.0 million shares at $17.00 - $19.00 per share. Net proceeds of approximately $164.4 million will be used to repay debt and for general corporate purposes.

Lead Underwriters: Credit Suisse, Goldman Sachs, Banc of America

Financial Highlights:

Revenues increased from $75.3 million for the nine months ended September 30, 2006 to $172.7 million for the nine months ended September 30, 2007, or 129.3%...Total operating expenses increased from $58.4 million for the nine months ended September 30, 2006 to $144.2 million for the nine months ended September 30, 2007, or 146.9%... Cost of revenues increased from $18.9 million for the nine months ended September 30, 2006 to $56.7 million for the nine months ended September 30, 2007, or 199.3%... Net income decreased from $12.3 million for the nine months ended September 30, 2006 to $1.2 million for the nine months ended September 30, 2007, or 90.3%.

Competition:

We believe that we are the market leader in the multi-asset risk management category and have significant market share in this segment, which is characterized by a limited number of external third party competitors. Our largest source of competition is in-house IT and development staffs or legacy risk management systems. We believe that we can provide clients with a superior product and service offering at a lower cost to clients than internal departments. Also, the growing trend towards outsourcing IT functions will benefit us as we believe that there are few external providers who can provide the same scope of services that we provide to our clients. Our primary competition includes Bear Stearns' (NYSE:BSC) Bear Measurisk unit, BlackRock Inc.'s (NYSE:BLK) BlackRock Solutions unit, DST Systems Inc. (NYSE:DST), Fimalac S.A.'s Algorithmics unit, Moody Corporation's (NYSE:MCO) KMV unit, MSCI Inc.'s (MXB) Barra unit and SunGard Data Systems Inc. Our RiskMetrics business competes primarily on the basis of product and service functionality and level of service provided.

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