F-1/A 1 d661473df1a.htm AMENDMENT NO. 3 TO FORM F-1 Amendment No. 3 to Form F-1
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As filed with the U.S. Securities and Exchange Commission on June 16, 2014

Registration No. 333-195687

 

 

 

UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

Washington, D.C. 20549

 

Amendment No. 3

to

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

MARKIT LTD.

(Exact name of Registrant as specified in its charter)

 

Bermuda    7370        N/A
(State or other jurisdiction of
incorporation or organization)
   (Primary Standard Industrial
     Classification Code Number)      
   (I.R.S. Employer
Identification Number)

4th Floor, Ropemaker Place, 25 Ropemaker Street London, England

EC2Y 9LY +44 20 7260 2000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

 

Adam J. Kansler

Chief Administrative Officer

c/o Markit North America, Inc.

620 Eighth Avenue, 35th Floor

New York, NY 10018

(212) 931-4900

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Copies to:

Richard D. Truesdell, Jr., Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017

212-450-4000

  

David J. Goldschmidt, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, NY 10036

212-735-3000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered   Amount to be
registered(1)
    Proposed maximum
offering price per share(2)
   

Proposed maximum aggregate

offering price(2)

    Amount of registration
fee(3)
 

Common shares, par value $0.01 per share

    52,564,160        $25.00        $1,314,104,000        $169,256.60   
  (1) Includes additional shares, if any, that may be purchased by the underwriters to cover over-allotments.
  (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
  (3) Previously paid.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

Dated June 16, 2014

PROSPECTUS

 

LOGO

45,707,965 Common Shares

This is an initial public offering of Markit Ltd. The selling shareholders, including certain employees and members of our management, are offering all of the common shares being offered under this prospectus. We will not receive any proceeds from the sale of common shares in this offering.

Prior to this offering, there has been no public market for our common shares. It is currently estimated that the initial public offering price will be between $23.00 and $25.00 per common share. Our common shares have been approved for listing on the Nasdaq Global Select Market under the symbol “MRKT.”

We are an “emerging growth company” under the U.S. federal securities laws and will be subject to reduced public company reporting requirements.

Investing in the common shares involves risks. See “Risk Factors” beginning on page 12 of this prospectus.

 

 

 

        Price to public        Underwriting
discounts and
commissions(1)
       Proceeds, before
expenses, to selling
shareholders
 

Per share

       $                                 $                                 $                                    

Total

       $                                 $                                 $                                    
(1) See “Underwriting (Conflicts of Interest)” for a description of all compensation payable to the underwriters.

Certain selling shareholders have granted the underwriters an option for a period of 30 days to purchase up to an additional 6,856,195 common shares from such selling shareholders identified in this prospectus on the same terms as set forth above to cover over-allotments, if any. See “Underwriting (Conflicts of Interest).”

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for the issue and transfer of the common shares to and between residents and non-residents of Bermuda for exchange control purposes provided our common shares remain listed on an appointed stock exchange, which includes the Nasdaq Global Select Market. In granting such consent, neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda accepts any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.

The common shares will be ready for delivery on or about                     , 2014.

 

 

 

BofA Merrill Lynch   Barclays   Citigroup   Credit Suisse
Deutsche Bank Securities   Goldman, Sachs & Co.   HSBC

J.P. Morgan

  Morgan Stanley  

UBS Investment Bank

BNP PARIBAS   Jefferies  

RBC Capital Markets

  RBS   TD Securities

 

 

                    , 2014


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LOGO


Table of Contents

TABLE OF CONTENTS

 

 

 

     Page

Presentation of Financial Information

    ii   

Market and Industry Data and Forecasts

    ii   

Prospectus Summary

    1   

Risk Factors

    12   

Cautionary Statement Regarding Forward-Looking Statements

    36   

Use of Proceeds

    38   

Dividends and Dividend Policy

    38   

Corporate Reorganization

    39   

Capitalization

    41   

Selected Consolidated Historical and Pro Forma Financial Information

    42   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    46   

Business

    71   

Management

    84   

Principal and Selling Shareholders

    97   

Related Party Transactions

    108   

Common Shares Eligible for Future Sale

    112   

Description of Share Capital

    114   

Bermuda Company Considerations

    121   

Taxation

    127   

Underwriting (Conflicts of Interest)

    133   

Legal Matters

    144   

Experts

    144   

Where You Can Find More Information

    144   

Expenses of the Offering

    145   

Enforcement of Judgments

    145   

Index to Financial Statements

    F-1   

 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Markit” or the “company,” “we,” “our,” “ours,” “us” or similar terms refer to Markit Group Holdings Limited and its subsidiaries prior to the completion of our corporate reorganization, and Markit Ltd. and its subsidiaries as of the completion of our corporate reorganization and thereafter. See “Corporate Reorganization.”

We and the selling shareholders have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the selling shareholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we, the selling shareholders nor the underwriters are making an offer to sell the common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

For investors outside the United States: neither we, the selling shareholders nor any of the underwriters has done anything that would permit this offering or possession or distribution of this

 

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prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

Presentation of Financial Information

We prepare and report our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States. We maintain our books and records in U.S. dollars.

We have historically conducted our business through Markit Group Holdings Limited and its subsidiaries, and therefore our historical financial statements present the results of operations of Markit Group Holdings Limited. Prior to the closing of this offering, we will engage in a corporate reorganization described under “Corporate Reorganization” pursuant to which Markit Group Holdings Limited will become a wholly-owned subsidiary of Markit Ltd., a newly formed holding company with nominal assets and liabilities, which will not have conducted any operations prior to this offering. Markit Ltd.’s financial statements will be the same as Markit Group Holdings Limited’s financial statements prior to this offering, as adjusted for the corporate reorganization. Following the corporate reorganization and this offering, our financial statements will present the results of operations of Markit Ltd. and its consolidated subsidiaries.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.

Unless otherwise indicated, all references to currency amounts in this prospectus are in U.S. dollars.

Market and Industry Data and Forecasts

Certain market data and industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, reports of governmental and international agencies and industry publications and surveys. Industry publications and third-party research, surveys and reports generally indicate that their information has been obtained from sources believed to be reliable. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

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Prospectus Summary

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and the consolidated financial statements of Markit Group Holdings Limited and the notes to those statements, included elsewhere in this prospectus, before deciding to invest in the common shares.

MARKIT

 

 

Markit is a leading global diversified provider of financial information services. Our offerings enhance transparency, reduce risk and improve operational efficiency in the financial markets. Since we launched our business in 2003, we have become deeply embedded in the systems and workflows of many of our customers and continue to become increasingly important to our customers’ operations. We leverage leading technologies and our industry expertise to create innovative products and services across multiple asset classes. We provide pricing and reference data, indices, valuation and trading services, trade processing, enterprise software and managed services. Our end-users include front and back office professionals, such as traders, portfolio managers, risk managers, research professionals and other capital markets participants, as well as operations, compliance and enterprise data managers. We are highly responsive to evolving industry needs and work closely with market participants to develop new products and services.

We have over 3,000 institutional customers globally, including banks, hedge funds, asset managers, accounting firms, regulators, corporations, exchanges and central banks. For the year ended December 31, 2013, approximately 49.9% of our revenue came from customers in the United States, 40.3% from the European Union and 9.8% from other geographic areas. For the year ended December 31, 2013, we generated 50.6% of our revenue from recurring fixed fees and 45.3% from recurring variable fees. For the three months ended March 31, 2014, we generated 51.7% of our revenue from recurring fixed fees and 43.3% from recurring variable fees.

For the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, we generated revenue of $762.5 million, $860.6 million, $947.9 million and $259.4 million, respectively. We generated profit attributable to equity holders of $125.8 million, $125.0 million, $139.4 million and $39.8 million, and Adjusted EBITDA of $305.0 million, $358.2 million, $421.3 million and $116.7 million for the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, respectively. Our Adjusted EBITDA margin for the year ended December 31, 2013 was 45.6%, reflecting the operating leverage inherent in our business model and our culture of cost management. See “Selected Consolidated Historical and Pro Forma Financial Information” for a description of how we define Adjusted EBITDA, why we believe it is useful to investors and a reconciliation to profit for the period from continuing operations.

Our business is organized in three divisions: Information, Processing and Solutions.

Information: Our Information division, which represented approximately 48.5% of our revenue in 2013, provides enriched content comprising pricing and reference data, indices and valuation and trading services across multiple asset classes and geographies through both direct and third-party distribution channels. Our Information division products and services are used for independent valuations, research, trading, and liquidity and risk assessments. These products and services help our customers price instruments, comply with relevant regulatory reporting and risk management requirements, and analyze financial markets.

 

 

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Processing: Our Processing division, which represented approximately 28.0% of our revenue in 2013, offers trade processing solutions globally for over-the-counter (“OTC”) derivatives, foreign exchange (“FX”) and syndicated loans. Our trade processing services enable buy-side and sell-side firms to confirm transactions rapidly, which increases efficiency by optimizing post-trade workflow, reducing risk, complying with reporting regulations and improving connectivity. We believe we are the largest provider of end-to-end multi-asset OTC derivatives trade processing services.

Solutions: Our Solutions division, which represented approximately 23.5% of our revenue in 2013, provides configurable enterprise software platforms, managed services and hosted custom web solutions. Our offerings, which are targeted at a broad range of financial services industry participants, help our customers capture, organize, process, display and analyze information, manage risk and meet regulatory requirements.

Our Competitive Strengths

 

 

We believe that our competitive strengths include the following:

Demonstrated Ability to Innovate and Develop New Products. We work closely with our customers to develop and introduce new offerings that are designed to enhance transparency, reduce risk and improve operational efficiency. In recent years, we have launched new products addressing a wide array of customer needs, such as managing credit exposure, meeting regulatory reporting requirements, increasing efficiency in trade confirmation, enhancing industry communication and improving bond market transparency. We offer a distribution model that enables our customers to receive our data either through our own proprietary distribution channels or through third-party applications.

Trusted Partner for Diversified, Global Customer Base and Strong Brand Recognition. We believe that our customers trust and rely on us for our consultative approach to product development, dedication to customer support and proven ability to execute and deliver effective solutions. Our industry expertise allows us to understand our customers’ needs, provide effective solutions and grow our product and service offerings. Our global footprint allows us to serve our customers throughout the world and to introduce our products and services to customers in new markets. The Markit brand is well established and recognized throughout the financial services community—many of the major financial market participants use our products and services. We also own a number of well-known index brands, including the Purchasing Managers Index (“PMI”) series, iBoxx, iTraxx and CDX.

Proven Ability to Acquire and Grow Complementary Businesses. We have a history of making targeted acquisitions that facilitate our growth by complementing our existing products and services and addressing market opportunities. We seek to acquire companies that allow us to consolidate existing businesses, diversify into related markets, and access technologies, products or expertise that enhance our product and service offerings. We have a proven track record of successfully integrating acquisitions into our business, including our global sales network, technology infrastructure and operational delivery model.

Attractive Financial Model. We believe we have an attractive financial model due to high recurring revenue, strong organic growth and high cash generation.

 

High Recurring Revenue: We offer our products and services primarily through recurring fixed fee and variable fee agreements, and this business model has historically delivered stable revenue and predictable cash flows. Many of the capabilities that we provide are core to our customers’ business operations, deeply embedded in their existing workflows and difficult to replace.

 

 

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We calculate a renewal rate to assess how successful we have been in maintaining our existing business for products and services that fall due for renewal. This renewal rate compares the dollar value of renewals during the period to the total dollar value of all contracts that fall due for renewal during the period. This population of renewals is largely contracts that are recurring fixed fee in nature. The value of the contracts renewed includes situations where customers have renewed but downgraded the contract price, reduced the number of products and services they purchase from us and decided not to renew all products and services. It does not include the benefit of price increases on these existing products or services, or upgrades to existing contracted products or services. Using this definition, for the year ended December 31, 2013 and the three months ended March 31, 2014, our renewal rate of recurring fixed fee contracts was approximately 90%.

 

Strong Organic Growth: The breadth of our offerings in conjunction with our large, global customer base allows us to cross-sell our products and services. We have also developed new products and services and substantially expanded our customer base.

 

High Cash Generation: Our business has low capital requirements for product maintenance and development, allowing us to generate strong cash flow.

Experienced Management Team Incentivized by Ownership Culture. On average, our 35 most senior managers have worked in the financial industry for 22 years. This experience has provided our management team with a strong network of relationships and an extensive understanding of market participants within the financial services industry. We have attracted a highly-qualified and motivated employee base through significant employee ownership which creates a culture of innovation and an organization that quickly adapts to change.

Our Market Opportunity

 

 

We believe we are well-positioned to embrace changes in the financial services industry:

Focus on Efficiency in the Financial Services Industry. Financial institutions are focused on rationalizing costs and increasingly view third-party products and services as effective means of achieving cost efficiencies. In addition, as financial institutions look to optimize vendor management, they are exhibiting a preference for companies with scale that offer a broad array of products and services. We believe our scale and broad portfolio of solutions position us well as customers seek to consolidate vendors. We also work actively with our customers to find opportunities to reduce their costs and improve services through industry solutions, most notably in managed services.

Changing Regulatory Landscape. New global regulations are driving higher capital requirements, enhanced risk management, and increased electronic trading and reporting and compliance requirements. In addition, regulations are driving market participants to gather more timely, relevant and complete data to improve transparency. With these new regulations and as regulatory authorities globally continue to establish stricter standards, we believe our customers will continue to strengthen their compliance capabilities, manage greater volumes of data and improve their risk management functions.

Evolving Technology and Communication Networks. Technology and information services are migrating toward cloud-based solutions and open architecture platforms. This trend creates challenges for securities firms and institutional investors, which have typically employed technology that is designed, built and administered in-house, a model that has limited flexibility and results in increased costs. In addition, instant messaging and social networks challenge the current closed, point-to-point communication networks used in financial services. These trends present an opportunity to create new services based on flexible technologies in a secure and compliant manner by moving away from high-cost, single-provider platforms.

 

 

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Growth Shifting to Emerging Markets and Developing Economies. Emerging markets and developing economies are experiencing more rapid economic and population growth relative to developed economies in Western Europe and the United States. As financial markets in emerging markets and developing economies continue to mature, we expect increased demand in these countries for our products and services.

Shifting Investment Styles. Investors are allocating increasing amounts of capital to passive investment products and are seeking exposure beyond equities to a wider range of asset classes, including bonds, loans and commodities. Passive investment products have proliferated due to investor demand for transparency, lower costs and greater liquidity. We believe these trends will persist, generating significant growth opportunities for our multi-asset class offerings.

Our Growth Strategies

 

 

The key components of our growth strategy include:

Deliver Products and Services to Drive Customer Cost-Efficiency. The financial services industry’s regulatory and operating environment is putting pressure on our customers’ profits, driving them to rationalize costs and operate more efficiently. We believe there is a significant opportunity to reshape the cost structure of the industry by replacing services that have historically been duplicated across institutions. Our experience, reputation as a trusted partner and strong relationships with major financial institutions have allowed us to respond to customer needs for centralized services such as reference data management, customer on-boarding, global corporate actions and document management, which we believe will generate substantial cost savings for our customers.

Capitalize on Evolving Regulatory and Compliance Environment. Changing regulations are creating the need for new compliance and reporting processes, risk management protocols, disclosure requirements and analytics. We will continue to address these needs by providing auditable and compliant sources of risk and pricing data, multi-asset class global solutions, and integrated market and credit risk reporting. Our solutions are expected to support customers’ regulatory submissions, including stress testing and scenario analysis. In addition, we are re-positioning our trade processing business from a transaction-based confirmation service to a connectivity and regulatory reporting service; building out our know your customer (“KYC”) managed services capabilities; and enhancing our counterparty risk management and risk analytics offerings to meet the growing requirements of regulation and compliance. We expect our index business to benefit from the increased regulatory scrutiny imposed on administrators of benchmarks, which larger, well established providers such as ourselves are best positioned to address.

Introduce Innovative Offerings and Enhancements. To maintain and enhance our leadership position, we continuously strive to introduce enhancements to our existing products and services as well as new products and services. We maintain an active dialogue with our customers and partners to allow us to understand their needs and anticipate market developments.

Increase in Geographic, Product and Customer Penetration. We believe there are significant opportunities to increase the number of users of our products and services at existing institutional customers, increase the number of locations where our products and services are used with existing customers and increase our cross-selling of products and services. We plan to add new customers by responding to the changing demands of the financial services community and by leveraging our brand strength, broad portfolio of solutions, global footprint and strong industry knowledge. We have developed significant penetration into large sell-side and buy-side firms in North America and Western Europe and have established a presence in select emerging markets and developing economies, and there is potential for further penetration and growth in emerging markets and developing economies, particularly in Asia.

 

 

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Pursue Strategic Acquisitions. We selectively evaluate technologies and businesses that we believe have potential to enhance, complement or expand our product and service offerings and strengthen our value proposition to customers. We target acquisitions that can be efficiently integrated into our global sales network, technology infrastructure and operational delivery model to drive value. We believe we are an acquirer of choice among prospective acquisition targets due to our entrepreneurial culture, growth, global scale, strong brand and market position.

Corporate Information

 

 

Markit Group Holdings Limited was formed on May 9, 2007 pursuant to the laws of England and Wales, as a successor company to Markit Group Limited. Markit Ltd. was incorporated pursuant to the laws of Bermuda on January 16, 2014 to become a holding company for Markit Group Holdings Limited. Pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering, all of the interests in Markit Group Holdings Limited will ultimately be exchanged for newly issued common shares of Markit Ltd. and, as a result, Markit Group Holdings Limited will become a wholly-owned subsidiary of Markit Ltd.

Our principal executive offices are located at 4th Floor, Ropemaker Place, 25 Ropemaker Street, London, England EC2Y 9LY. Our telephone number at this address is +44 20 7260 2000. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. We maintain a website at www.markit.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

We maintain a registered office in Bermuda at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The telephone number of our registered office is +1 441 295 5950.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. References in this prospectus to “emerging growth company” shall have the meaning associated with that term in the JOBS Act.

 

 

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The Offering

 

Issuer

Markit Ltd.

 

 

 

Common shares issued and outstanding prior to this offering

177,108,500 common shares.

 

 

 

Common shares offered by the selling shareholders

45,707,965 common shares.

 

 

 

Voting rights

The common shares have one vote per share.

 

 

 

Over-allotment option

Certain selling shareholders have granted the underwriters the right to purchase up to an additional 6,856,195 common shares within 30 days of the date of this prospectus, to cover over-allotments, if any, in connection with the offering.

 

 

 

Common shares to be issued and outstanding immediately after this offering 

178,868,020 common shares (including the issuance of 1,759,520 common shares to certain selling shareholders upon exercise of outstanding options in connection with the consummation of this offering, which shares will be sold by such selling shareholders in this offering).

 

 

 

Use of proceeds

The selling shareholders will receive all of the net proceeds from the sale of the common shares offered under this prospectus. Accordingly, we will not receive any proceeds from the sale of common shares in this offering. See “Use of Proceeds.”

 

 

 

Dividend policy

We have not adopted a dividend policy with respect to future dividends, and we do not currently intend to pay cash dividends on our common shares. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend on many factors, such as our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors deemed relevant by our Board of Directors. See “Dividends and Dividend Policy” and “Description of Share Capital.”

 

 

 

Lock-up agreements

We and the selling shareholders have agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Members of our Board of Directors and our executive officers, as well as most of our other existing shareholders, have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting (Conflicts of Interest).” See also “Related Party Transactions—Registration Rights Agreement” for a description of a registration rights and lock-up agreement to be entered into among us, certain of our existing shareholders and, if the Canada Pension Plan Investment Board (“CPPIB”) purchases shares in this offering, CPPIB upon the closing of this offering.

 

 

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Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the common shares.

 

 

 

Conflicts of Interest

Each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBS Securities Inc. and/or their affiliates will be receiving more than 5% of the net offering proceeds resulting in a “conflict of interest” pursuant to FINRA Rule 5121(f)(5)(C) due to their roles as selling shareholders. Therefore, this offering will be conducted in accordance with FINRA Rule 5121, which requires that these underwriters with a conflict of interest not make sales to discretionary accounts without the prior written consent of the account holder and that a qualified independent underwriter (“QIU”), as defined in Rule 5121, participates in the preparation of the registration statement of which this prospectus forms a part and performs its usual standard of due diligence with respect thereto. Jefferies LLC has agreed to act as QIU for this offering.

 

 

 

Listing

Our common shares have been approved for listing on the Nasdaq Global Select Market, or Nasdaq, under the symbol “MRKT.”

 

 

 

CPPIB has indicated an interest in purchasing up to $450 million of our common shares at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to CPPIB, and CPPIB could determine to purchase more, less or no shares in this offering. If CPPIB purchases common shares in this offering, it will have the right to nominate, in consultation with our Nominating and Governance Committee, one director for appointment to our Board of Directors. We expect CPPIB’s nominee to join our Board of Directors after the completion of our initial public offering. This right will expire if CPPIB’s beneficial ownership of our common shares falls below 100% of the number of common shares, if any, CPPIB purchased in our initial public offering.

The number of common shares issued and outstanding prior to, and to be issued and outstanding after, this offering excludes:

 

68,297,390 common shares issuable upon the exercise of outstanding options as of April 30, 2014 (which gives effect to the issuance of 1,759,520 common shares to certain selling shareholders upon exercise of outstanding options in connection with the consummation of this offering, which shares will be sold by such selling shareholders in this offering), at a weighted-average exercise price of $23.207 per share;

 

1,398,970 restricted shares issued and outstanding as of April 30, 2014;

 

6,220,000 common shares available for future issuance under our equity incentive plans as of the consummation of this offering; and

 

25,210,690 common shares held by the Markit Group Holdings Limited Employee Benefit Trust (the “EBT”), which is a discretionary trust through which shares may be delivered to Markit’s existing and former employees in satisfaction of their rights under any share incentive arrangements established by Markit. Unless Markit directs otherwise, the trustee of the EBT may not vote any of the shares held by the EBT and is also generally obliged to forgo dividends. See “Management—Employee Benefit Trust.”

 

 

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Unless otherwise indicated, all information contained in this prospectus assumes the completion, prior to the closing of this offering, of our corporate reorganization pursuant to which (i) all of the voting ordinary shares and non-voting ordinary shares in Markit Group Holdings Limited will be exchanged for common shares and non-voting common shares, respectively, in Markit Ltd., in each case on a one for one basis; and (ii) the holders of the common shares and non-voting common shares will agree to the reclassification and variation of the rights of their shares and the adoption of bye-laws, resulting in a single class of common shares of Markit Ltd. with the rights as further described in this prospectus. See “Corporate Reorganization.”

Unless otherwise indicated, all information in this prospectus also reflects and assumes:

 

the issuance of 1,759,520 shares to certain selling shareholders upon exercise of outstanding options in connection with the consummation of this offering, which shares will be sold by such selling shareholders in this offering;

 

no exercise of the underwriters’ option to purchase up to an additional 6,856,195 common shares to cover over-allotments, if any; and

 

a 10-for-1 share split of our common shares that will be effected prior to the closing of this offering.

 

 

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Summary Consolidated Historical and Pro Forma Financial Information

The following summary consolidated historical and pro forma financial information should be read in conjunction with the sections entitled “Corporate Reorganization,” “Presentation of Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and interim condensed consolidated financial statements of Markit Group Holdings Limited, including the notes thereto, included elsewhere in this prospectus.

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The summary consolidated historical financial information presented as of and for the years ended December 31, 2011, 2012 and 2013 has been derived from the audited consolidated financial statements of Markit Group Holdings Limited included elsewhere in this prospectus. Historical results for any prior period are not necessarily indicative of results expected in any future period. The summary consolidated historical financial information presented as of March 31, 2014 and for the three months ended March 31, 2013 and 2014 has been derived from the unaudited condensed consolidated interim financial statements of Markit Group Holdings Limited included elsewhere in this prospectus, which, in the opinion of our management, include all adjustments necessary to present fairly the results of operations and financial condition at the date and for the periods presented. The results for the three months ended March 31, 2014 are not necessarily indicative of the results of operations that you should expect for the entire year ending December 31, 2014 or any other period.

The unaudited pro forma financial information set forth below is derived from Markit Group Holdings Limited’s audited and unaudited consolidated financial statements appearing elsewhere in this prospectus and is based on assumptions as explained in the notes to the tables.

 

 

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All our operations are continuing operations and we have not proposed or paid dividends in any of the periods presented.

 

   

As of and for the

year ended

December 31,

   

As of and for the

three months

ended March 31,

 
($ in millions other than per
share data)
  2011     2012     2013     2013     2014  

Income statement data:

                                       

Revenue

    762.5        860.6        947.9        227.4        259.4   

Operating expenses

    (403.0     (454.0     (515.1     (125.1     (142.7

Operating profit

    229.7        224.7        230.1        84.1        59.8   

Profit for the period

    156.2        153.1        147.0        58.3        39.8   

Profit attributable to equity holders

    125.8        125.0        139.4        50.7        39.8   

Earnings per share – basic

    7.0     7.0     8.0     2.96        2.25   

Earnings per share – diluted

    6.9     6.9     7.9     2.93        2.22   

Pro forma earnings(1):

                                       

Pro forma earnings per common share, basic

    0.70        0.70        0.80        0.30        0.23   

Pro forma earnings per common share, diluted

    0.69        0.69        0.79        0.29        0.22   

Pro forma weighted average number of shares used to compute pro forma earnings per common share, basic(2)

    178,929,210        177,716,240        173,875,980        171,097,780        176,728,360   

Pro forma weighted average number of shares used to compute pro forma earnings per common share, diluted(2)

    181,730,830        180,020,120        175,550,760        172,817,230        178,719,390   

Balance sheet data:

                                       

Total assets

    2,648.3        3,151.3        3,199.9        —          3,271.2   

Total equity/net assets

    2,031.4        1,929.7        2,055.9        —          2,112.3   

Cash flow data:

                                       

Net cash generated from operating activities

    322.2        340.6        339.8        45.6        41.4   

Net cash used in investing activities

    (137.8     (479.6     (170.6     (34.1     (119.9

Net cash (used in) / generated from financing activities

    (163.3     99.4        (203.9     (47.7     41.2   

Net (decrease) / increase in cash

    21.1        (39.6     (34.7     (36.2     (37.3

Other financial data:

                                       

Adjusted EBITDA(3)

    305.0        358.2        421.3        90.8        116.7   

Adjusted EBITDA margin(4)

    45.8     47.0     45.6     44.7     45.0

Adjusted Earnings(5)

    184.8        218.4        248.4        47.5        72.9   

 

 

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As of and for the

year ended

December 31,

   

As of and for the

three months

ended March 31,

 
($ in millions other than per share data)    2011     2012     2013     2013     2014  

Adjusted Earnings per share – diluted(6)

     10.17        12.13        14.15        2.75        4.08   

Segmental data:

                                        

Revenue

                                        

Information

     373.4        431.3        459.6        111.6        117.7   

Processing

     227.3        238.8        265.3        65.2        72.2   

Solutions

     161.8        190.5        223.0        50.6        69.5   

Total revenue

     762.5        860.6        947.9        227.4        259.4   

Adjusted EBITDA

                                        

Information

     174.5        214.5        217.2        51.4        55.2   

Processing

     128.8        124.5        138.1        34.7        39.2   

Solutions

     56.2        67.6        77.5        16.2        22.3   

Less non-controlling interests

     (54.5     (48.4     (11.5     (11.5     –     

Total Adjusted EBITDA

     305.0        358.2        421.3        90.8        116.7   

Adjusted EBITDA margin

                                        

Information

     46.7     49.7     47.3     46.1     46.9

Processing

     56.7     52.1     52.1     53.2     54.3

Solutions

     34.7     35.5     34.8     32.0     32.1

Adjusted EBITDA margin(4)

     45.8     47.0     45.6     44.7     45.0

 

(1) Pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering, all of the interests in Markit Group Holdings Limited will ultimately be exchanged for newly issued common shares of Markit Ltd. See “Corporate Reorganization.”

 

(2) The pro forma weighted average common shares issued and outstanding has been calculated as if the ownership structure resulting from the corporate reorganization was in place since inception, including the proposed share split.

 

(3) See “Selected Consolidated Historical and Pro Forma Financial Information” for a description of how we define Adjusted EBITDA, why we believe it is useful to investors and a reconciliation to profit for the period from continuing operations.

 

(4) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

 

(5) See “Selected Consolidated Historical and Pro Forma Financial Information” for a description of how we define Adjusted Earnings, why we believe it is useful to investors and a reconciliation to profit for the period from continuing operations.

 

(6) Adjusted Earnings per share – diluted is defined as Adjusted Earnings divided by the weighted average number of shares issued and outstanding, diluted, as disclosed in “Selected Consolidated Historical and Pro Forma Financial Information.”

 

 

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Risk Factors

You should carefully consider the material risks and uncertainties described below and the other information in this prospectus before making an investment in the common shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of the common shares could decline and you could lose all or part of your investment.

Risks Related to Our Business

 

 

We operate in highly competitive markets and may be adversely affected by this competition.

The markets for our products and services are highly competitive and are subject to rapid technological changes and evolving customer demands and needs. Many of our principal competitors are established companies that have substantial financial resources, recognized brands, technological expertise and vast market experience. These competitors sometimes have more established positions in certain product segments and geographic regions than we do. We also compete with smaller companies, some of which may be able to adopt new or emerging technologies or address customer requirements more quickly than we can.

Our competitors are also continuously improving their products and services (such as by adding new content and functionalities), developing new products and services, and investing in technology to better serve the needs of their existing customers and to attract new customers. Our competitors may also continue to acquire additional businesses in key sectors that will allow them to offer a broader array of products and services. Some of our competitors also market some of their products and services as lower cost alternatives to certain of our solutions, which may diminish the relative value of some of our products and services. We cannot assure you that our investments have been or will be sufficient to maintain or improve our competitive position or that the development of new or improved technologies, products and services by our competitors will not have a material adverse effect on our business.

Some of our current or future products or services could also be rendered obsolete as a result of competitive offerings or changes in regulation or the financial markets. Competition may require us to reduce the price of some of our products and services or make additional capital investments that would adversely affect our profit margins or cash flows. If we are unable or unwilling to do so, we may lose market share and our financial condition or results of operations may be adversely affected.

In addition, barriers to entry to create a new product or offer a new service may be low in many cases. The Internet as a distribution channel has allowed free or relatively inexpensive access to information sources, which has reduced barriers to entry even further. Low barriers to entry could lead to the emergence of new competitors.

If we fail to compete effectively against current or future competitors, our financial condition and results of operations could be adversely affected.

 

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If we are unable to develop successful new products and services, or if we experience design defects, errors, failures or delays associated with our products or services or migration of an existing product or service to a new system, our business could suffer serious harm.

Our growth and success depend upon our ability to develop and sell new products and services. If we are unable to develop new products or services, or if we are not successful in introducing or obtaining any required regulatory approval or acceptance for new products or services, we may not be able to grow our business or growth may occur more slowly than we anticipate.

Despite testing, products and services that we develop, license or distribute may contain errors or defects well after release. In addition, whether we release new products and services or migrate existing products and services to new systems, our software may contain design defects and errors when first introduced or when major new updates or enhancements are released despite testing. We have also experienced delays in the past while developing and introducing new products and services, primarily due to difficulties in acquiring data, developing new products or services and adapting to particular operating environments. Additionally, in our development of new products and services or updates and enhancements to our existing products and services, we may make a major design error that makes the product or service operate incorrectly or less effectively. Our customers may also use our products and services together with their own software, data or products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. If design defects, errors or failures are discovered in our current or future products or services, we may not be able to correct them in a timely manner, if at all.

Our inability to develop and sell new products and services, our inability to successfully migrate existing products or services to new systems, or design defects, errors or delays in our products or services that are significant, or are perceived to be significant, could result in rejection or delay in market acceptance of our products or services, damage to our reputation, loss of revenue, a lower rate of license renewals or upgrades, diversion of development resources, product liability claims or regulatory actions, or increases in service and support costs. We may also need to expend significant capital resources to eliminate or work around design defects, errors, failures or delays. In each of these ways, our business, financial condition or results of operations could be materially adversely impacted.

Declining activity levels in the securities or derivatives markets, weak or declining financial performance of financial market participants or the failure of market participants could lower demand for our products and services and could affect our recurring variable fee revenue.

Our business is dependent upon the global financial markets as well as the financial health of the participants in those markets. Reduced activity by any of our customer segments may decrease demand for some of our products and services. This could adversely affect our financial results by reducing our revenue.

In addition, a significant proportion of our revenue is variable and depends upon transaction volumes, investment levels (i.e., assets under management) or the number of positions we value. Lower activity levels in the financial markets, including lower transaction volumes, assets under management or positions taken could have a material adverse effect on our financial condition or results of operations.

 

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We work on product development with and generate a significant percentage of our total revenue from financial institutions that are also our shareholders, who are not contractually obligated to continue to maintain these relationships and who also have similar involvement with our competitors.

We have historically earned a substantial portion of our revenue from and have worked on new product and service offerings with financial institution customers that are also our shareholders. For the years ended December 31, 2011, 2012 and 2013, 43.8%, 44.7% and 42.6% of our total revenue, respectively, was generated by payments from financial institutions or their affiliates that are also our shareholders, some of which are underwriters of this offering. Cooperation with these financial institution customers has also been important in the development of many of our products and services. In addition, as described above, these financial institutions that are our customers and shareholders also provide us with data, which is a critical input for our products and services. Additionally, some of these financial institution customers that are also our shareholders have had a right to appoint members of our Board of Directors, which right will terminate upon the consummation of this offering.

Our financial institution shareholders and our other customers have made, and may continue to make, investments in businesses that directly compete with us. Our customers also trade, and will continue to trade, on markets operated by our competitors. Reduced engagement from these financial institution customers after this offering due to their loss of a right to designate a member of our Board of Directors, or the reduction in the level of their equity ownership in us in connection with or following the completion of this offering, may cause them to reduce or discontinue their use of our products and services, their desire to work with us on new product developments or their willingness to supply data and information services to us. The loss of, or a significant reduction in, participation on our platform by these financial institution customers may have a material adverse effect on our business, financial condition or results of operations.

We are dependent on third parties for data and information services.

We depend upon data and information services from external sources, including data received from certain competitors, customers and various government and public record services, for information used in certain of our products and services. In some cases, we do not own the information provided by these external sources, and the participating organizations could discontinue contributing information to the databases. Furthermore, our data sources could increase the price for or withdraw their data or information services for a variety of reasons, and we could also become subject to legislative, judicial or contractual restrictions on the use of data, in particular if such data is not collected by the third parties in a way which allows us to process the data or use it legally.

In addition, some of our customers are both significant shareholders of our company and data suppliers or information service providers. As of April 30, 2014, after giving effect to our corporate reorganization and this offering, 37.4% of our issued and outstanding common shares were owned by financial institutions who are also our customers. These same parties provide us a significant amount of our data. There can be no assurance that those customers will continue to provide data to the same extent or on the same terms or continue to purchase our products and services.

In addition, our competitors could enter into exclusive contracts with our existing or other data sources or information service providers. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain data or information services from these suppliers or restricted in our use of such data or information services, which may give our competitors an advantage. Such disruption of our data supply could have a material adverse effect on our business, financial position and operating results if we were unable to arrange for substitute sources of information.

 

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Further, our competitors could revise the current terms on which they provide us with data or services or could cease providing us with data or services altogether for a variety of reasons, including cessation or interruption of their provision of such data or services generally or to us specifically (for instance, because they decline to support us given our competing positions). Such disruption of our data or services supply could have a material adverse effect on our business, financial position and operating results if we are unable to compel supply of this data or services or suitably replace the data or services by sourcing alternatives internally or via another third-party provider.

If a substantial number of data sources or certain key sources were to withdraw or were unable to provide us with their data or information services, or if we were to lose access to data or information services due to government regulation or regulatory concerns of our suppliers or if the collection of data were to become uneconomical, our ability to provide products and services to our customers could be impacted. If any of these factors negatively impact our ability to provide products and services to our customers, our business, reputation, financial condition, operating results and cash flow could be materially adversely affected.

There may be consolidation in our end customer market, which would reduce the use of our products and services.

Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenue even if these events do not reduce the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or entities that use fewer of our products or services, such customers may discontinue or reduce their use of our products and services. For example, when Bank of America Corporation (together with its affiliates, “Bank of America”) acquired Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates (“Merrill Lynch”), several of our agreements with Merrill Lynch related to various products and services were terminated and consolidated under our historical contracts with Bank of America. Any such developments could materially and adversely affect our business, financial condition, operating results and cash flow.

The impact of cost-cutting pressures across the industry we serve could lower demand for our products and services.

Our customers are focused on controlling or reducing spending as a result of the continued financial challenges and market uncertainty many of them face. For example, in 2012, many large financial institutions initiated reductions in their workforces and took other measures to control or contain operational spending. In 2013, many of these institutions were subject to substantial penalties from regulatory bodies. Customers within the financial services industry that strive to reduce their operating costs may seek to reduce their spending on our products and services. Our results of operations could be materially and adversely affected if a large number of smaller customers or a critical number of larger customers reduce their spending with us.

Alternatively, customers may use other strategies to reduce their overall spending on financial market products and services by consolidating their spending with fewer vendors, including by selecting other vendors with lower-cost offerings, or by self-sourcing their need for financial market products and services. If customers elect to consolidate their spending on financial market products and services with other vendors and not us, if we lose business to lower priced competitors, or if customers elect to self-source their financial market product and service needs, our results of operations could be materially and adversely affected.

 

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Our customers may become more self-sufficient, which may reduce demand for our products and services and materially adversely affect our business, financial condition or results of operations.

Our customers may, as some have in the past, internally develop certain products and services as well as functionality contained in the products and services that they currently obtain from us, including through the formation of consortia. For example, some of our customers who currently license our valuations data and analytics tools to analyze their portfolios may develop their own tools to collect data and assess risk, making our products and services less useful to them. Furthermore, public sources of free or relatively inexpensive information, whether through the Internet, from governmental and regulatory agencies or from companies and other organizations, have become more readily available, and this trend is expected to continue. This greater availability of information could further assist our customers in independently developing certain products and services that we currently provide. To the extent that customers become more self-sufficient, demand for our products and services may be reduced, which could have a material adverse effect on our business, financial condition or results of operations.

We are subject to ongoing antitrust investigations and litigation arising from activities relating to credit default swaps, and may in the future become subject to further investigations and litigation. An adverse outcome in these investigations or litigation could result in substantial fines, damages or penalties and could change how we offer products or services, which could have a material adverse effect on our business, financial condition or results of operations.

We are subject to antitrust and competition laws and regulations in the countries where we have operations. These laws and regulations seek to prevent and prohibit anticompetitive activity. We are currently subject to a number of antitrust and competition-related investigations and claims, including investigations by the Antitrust Division of the U.S. Department of Justice and the Competition Directorate of the European Commission (the “EC”) as well as class action lawsuits in the United States. Certain of the underwriters in this offering are also the subject of those investigations and are defendants in the class action lawsuits. See “Business – Legal Proceedings” for a description of these matters. These investigations and lawsuits involve multiple parties and complex claims that are subject to significant uncertainties and unspecified penalties or damages. Therefore, we cannot estimate the probability of loss or the extent of our potential liability on a standalone basis or relative to the potential liability of the other parties to the investigations and lawsuits. Future investigations and lawsuits relating to credit default swaps are also possible.

Depending on the outcome of any pending or future claims or investigations, we may be required to change the way we offer particular products or services, which could result in material disruptions to and costs incurred by our business, and we may be subject to substantial fines, penalties, damages or injunction or other equitable remedies. The pending or future claims or investigations (regardless of outcome) may also affect how the Dealers (as defined in “Business – Legal Proceedings”) or other parties interact with us, including the manner or type of data provided to us and the manner or type of data products and services purchased from us. These pending antitrust and competition-related claims and investigations, and any future claims and investigations, could also be costly to us in terms of time and expense incurred defending such claims or investigations. Any of the above impacts, individually or together, could have a material adverse effect on our business, financial condition or results of operations.

 

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For some of our products and services, we typically face a long selling cycle to secure new contracts that requires significant resource commitments, resulting in a long lead time before we receive revenue.

For new products and services and for complex products and services, we typically face a long selling cycle to secure each new contract, and there is generally a long preparation period before we commence providing products and services or delivering configurable software. For instance, our Analytics service provides a range of enterprise risk management software solutions, using the latest risk technology to deliver computation speed. The consultative nature of these projects requires our sales team to actively engage with potential customers through various procurement stages, often requiring many levels of internal approval, and including various milestone phases such as scoping, planning and proof of concept to reach deal closure, which typically takes 12 months or more. We typically incur significant business development expenses during the selling cycle and we may not succeed in winning a new customer’s business, in which case we receive no revenue and may receive no reimbursement for such expenses. Current selling cycle periods could lengthen, causing us to incur even higher business development expenses with no guarantee of winning a new customer’s business. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, which may have a material adverse effect on our business, results of operations and financial condition.

We rely heavily on network systems and the Internet and any failures or disruptions may adversely affect our ability to serve our customers.

Most of our products and services are delivered electronically, and our customers rely on our ability to process transactions rapidly and deliver substantial quantities of data on computer-based networks. Our customers also depend on the continued capacity, reliability and security of our electronic delivery systems, our websites and the Internet. Our ability to deliver our products and services electronically may be impaired due to infrastructure or network failures, malicious or defective software, human error, natural disasters, service outages at third-party Internet providers or increased government regulation. For example, as a result of Hurricane Sandy in 2012, one of our data centers in New Jersey and some of our office space in New York City were flooded and unavailable, resulting in several days of reduced operations and substantial costs associated with repairs, relocation and resource reallocation to ensure continued delivery of our products and services. Significant growth of our customer base may also strain our systems in the future. Delays in our ability to deliver our products and services electronically may harm our reputation and result in the loss of customers. In addition, a number of our customers entrust us with storing and securing their data and information on our servers. Although we have disaster recovery plans that include backup facilities for our primary data centers, our systems are not always fully redundant, and our disaster planning may not always be sufficient or effective. As such, these disruptions may affect our ability to store, handle and secure such data and information.

From time to time, the speed at which we are required to update market and customer data can increase. This can sometimes impact product and network performance. Factors that have significantly increased data update rates include high market volatility, new derivative instruments, increased automatically generated algorithmic and program trading and market fragmentation, resulting in an increased number of trading and clearing venues. Changes in legislation and regulation pertaining to market structure and dissemination of market information may also increase data flow rates. There can be no assurance that our company and our network providers will be able to accommodate accelerated growth of data volumes or avoid other failures or interruptions. We currently face significant increases in our use of power and data storage, and we may experience a shortage of capacity and increased costs associated with such usage. A significant delay or disruption of our network systems, servers or use of the Internet may have a material adverse effect on our business, results of operations and financial condition, and our existing insurance coverage may not cover all of our losses.

 

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If embargoed data or non-public information relating to our indices, including the PMI series, is inadvertently disclosed or deliberately misused, our business, financial condition or results of operations could be materially adversely affected.

We own and administer several indices, including the PMI series, which are monthly economic surveys of selected companies that provide advance insight into the private sector economy. Among others, central banks use the PMI series data to help make interest rate decisions and financial analysts use the PMI series data to forecast official economic data. If, prior to the date of intended release, we are unable to limit access to the PMI series or prevent its unauthorized disclosure, whether inadvertent or deliberate, our reputation may suffer, which could have a material adverse effect on our business, financial condition or results of operations. Moreover, we provide the PMI series data under embargo to certain financial and marketplace news providers. Part of the value to us from doing so is that these news providers are able to analyze and provide commentary on the data simultaneously with the public release of such data by us. If the embargoed data is inadvertently disclosed or deliberately misused prior to our authorization, financial markets could be negatively affected and any resulting need to change our procedures around the provision of embargoed data to any third parties may diminish the value of the PMI series to our business.

Fraudulent or unpermitted data access and other security or privacy breaches may negatively impact our business and harm our reputation.

Our products, services and systems and our customers’ systems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and other similarly disruptive activity. Our existing resources and measures to maintain data and information security have not always in the past been, and may not always in the future be, effective. In the past, we have experienced security breaches and cyber incidents as well as occasional system interruptions that have made some of our services or websites unavailable for limited periods of time. Third-party contractors also may experience security breaches involving the storage and transmission of proprietary information. If users gain improper access to our databases, they may be able to steal, publish, delete or modify our confidential information or that of a third-party stored or transmitted on our networks. Any significant failure, compromise, cyber-breach or interruption of our systems, including operational services, loss of service from third parties, sabotage, break-ins, war, terrorist activities, power or coding loss or computer viruses could slow, damage or destroy our systems and interrupt service for periods of time. Any breach of data or information security caused by one of these events could also result in unintentional disclosure of, or unauthorized access to, company, customer, vendor, employee or other confidential data or information that could be material.

Any such security or privacy breach may adversely affect us in the following ways:

 

losing sales;

 

deterring customers from using our products or services;

 

affecting our ability to meet customers’ expectations;

 

deterring data suppliers from supplying data to us;

 

harming our reputation;

 

disclosing valuable trade secrets, know-how or other confidential information;

 

exposing us to liability;

 

increasing operating expenses to correct problems caused by the breach and to prevent future breaches of a similar nature;

 

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breaching terms of agreements;

 

violating certain data privacy or related legislation; or

 

causing inquiry or penalization from governmental authorities.

We rely on third-party software that may be difficult or costly to replace or could cause errors or failures in our products or services which could harm our customer relationships or our reputation.

Many of our systems rely on third-party software, such as software provided by SunGuard, Microsoft and Symantec, as key components. This software may not continue to be available to us on commercially reasonable terms, or at all. Should the companies providing such software cease supporting that software or significantly increase the cost of licensing such software, we may incur significant costs or product development delays until we either develop equivalent technology or, if available, identify, obtain and integrate alternative third-party technology into our systems. Moreover, our use of third-party software could cause errors or failures in our systems, products or services as a result of design defects in such software. Any such costs, delays, errors or failures could harm our business, customer relationships and reputation.

Our use of open source software and third-party software containing open source elements could result in litigation or impose unanticipated restrictions on our ability to commercialize our products and services.

We use open source software in our technology most often as small components within a larger product or service, to augment algorithms, functionalities or libraries created by Markit, and may use more open source software in the future. For example, Analytics and certain MarkitSERV foreign exchange products all use ANTLR, a standard, industry-known parser for reading, processing, executing or translating structured text or binary files, which is licensed pursuant to the permissive Berkeley Software Distribution license. Open source code is also contained in some third-party software we rely on. We could be subject to suits by parties claiming breach of the terms of the license for such open source software. The terms of many open source licenses are ambiguous and have not been interpreted by U.S. or other courts, and these licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products and services. Litigation could be costly for us to defend, have a negative impact on our operating results and financial condition or require us to devote additional research and development resources to remove open source elements from or otherwise change our software. In addition, if we were to combine our proprietary technology with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software. If we inappropriately use open source software, we may also be required to re-engineer our software, license our software on unfavorable terms or at no cost, discontinue certain products and services or take other remedial actions, any of which could have a material adverse effect on our business, results of operations or financial condition.

We may face liability for content contained in our products and services.

We may be subject to claims for breach of contract, defamation, libel, copyright or trademark infringement, fraud or negligence, or other theories of liability, in each case relating to the data, articles, commentary, ratings, information or other content we collect and distribute in the provision of our products and services. If such data or other content or information that we distribute has errors, is delayed or has design defects, we could be subject to liability or our reputation could suffer. We could also be subject to claims based upon the content that is accessible from our corporate website or those

 

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websites that we own and operate through links to other websites. Costs to defend or liability arising as a result of such claims, or any resulting reputational harm, could have a material adverse effect on our financial condition or results of operations.

We depend on world class personnel to operate and grow our business, and if we do not continue to recruit, motivate and retain high quality management and key employees, we may not be able to execute our business strategies.

The performance of our strategies depends on our ability to continue to recruit, motivate and retain our executive officers and other key management, sales, marketing, product development and operations personnel across our entire business. We compete with many businesses that are seeking skilled individuals, including those with advanced technical abilities. Competition for professionals in our Information, Solutions and Processing divisions can be intense as other companies seek to enhance their positions in our market segments.

A significant amount of the equity interests in our company that were granted to our employees prior to this offering will be fully vested at the time of this offering. As a result, some of our employees may be able to realize substantial financial gains in connection with the sales of their vested equity interests following the expiration of any lock-up period, which could result in a loss of these employees. We also intend to continue to use equity incentive awards as a means of retaining employees; if, however, our share price does not appreciate above the initial public offering price or there is a significant decline in our share price relative to the exercise price at which equity awards are granted in the future, the value of equity incentives as a retention tool would decline. In addition, any future organizational changes, including the integration of new acquisitions with our other business units, could cause our employee attrition rate to increase. The loss of the services of key personnel or our inability to otherwise recruit, motivate or retain qualified personnel could have an adverse effect on our business, operating results and financial condition.

We generate a significant percentage of our revenue from recurring fixed fee agreements, and our ability to maintain existing revenue and to generate higher revenue is dependent in part on maintaining a high renewal rate.

For the year ended December 31, 2013 and for the three months ended March 31, 2014, we generated 50.6% and 51.7%, respectively, of our revenue from recurring fixed fees, which are typically subscription agreements. Although the initial term of our subscription agreements can range from one to five years and many of them include auto-renewal clauses, with appropriate notice, certain arrangements are cancelable. To maintain existing fixed revenue and to generate higher revenue, we rely on a significant number of our customers renewing their subscriptions with us or not canceling their subscriptions. Our revenue could also be adversely impacted if a significant number of our customers renewed their subscriptions with us but reduced the amount of their spending on those subscriptions.

Our growth and profitability may not continue at the same rate as we have experienced in the past, which could have a material adverse effect on our business, financial condition or results of operations.

We have experienced significant growth during our operating history. There can be no assurance that we will be able to maintain the levels of growth and profitability that we have experienced in the past. Among other things, there can be no assurance that we will be as successful in our expansion efforts as we have been in the past, or that such efforts will result in growth rates or profit margins comparable to those we have experienced in the past. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Any failure to continue to grow our business and

 

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maintain profitability could have a material adverse effect on our business, financial condition or results of operations. See, for example, “—If we are unable to develop successful new products and services, or if we experience design defects, errors, failures or delays associated with our products or services or migration of an existing product or service to a new system, our business could suffer serious harm” and “—We depend on world class personnel to operate and grow our business, and if we do not continue to recruit, motivate and retain high quality management and key employees, we may not be able to execute our business strategies.”

Our brands and reputation are important company assets and are key to our ability to remain a trusted source of our products and services.

The integrity of our brands and reputation is key to our ability to remain a trusted source of products and services and to attract and retain customers. Negative publicity regarding Markit or actual, alleged or perceived issues regarding one of our products or services could harm our relationships with customers. Failure to protect our brands may adversely impact our credibility as a trusted supplier of content and may have a negative impact on our business.

We enter into redistribution arrangements that allow other firms to represent certain of our products and services. It is difficult to monitor whether such agents’ representation of our products and services is accurate. In the past, certain companies have used our products and services to attract customers without our permission to do so. Poor representation of our products and services by our partners or agents, or entities acting without our permission, could have an adverse effect on our reputation and our business.

Changes in legislation and regulation may decrease the demand for our products and services from customers.

Over the past few years, the United States, the European Union (the “EU”) and other jurisdictions have introduced new legislation and regulation of financial markets, including the OTC derivatives markets from which we derive a significant portion of our revenue. These legislative and regulatory efforts may decrease the demand for our products and services from customers, thereby adversely affecting our revenue.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in the United States, the European Market Infrastructure Regulation (“EMIR”) and Markets in Financial Instruments Directive (“MiFID”) in the EU and other legislation and regulation in these jurisdictions and others mandate that many OTC derivatives be centrally cleared through regulated clearinghouses and reported to trade repositories (and, in many cases, also to the public) and subject market participants to business conduct, risk management, capital, margin and recordkeeping rules, among other requirements. New capital rules, including the Capital Requirements Directive IV (“CRD IV”) and Basel III require higher capital charges for non-cleared derivatives. President Obama’s proposed 2014 budget would subject all derivatives to mark-to-market taxation treatment, likely increasing derivatives customers’ tax burden. Some of these statutory and regulatory requirements are currently effective, while others, including significant revisions to MiFID, will become effective over the next several years. Additional legislation and regulation in this area, beyond what is currently contemplated, are also possible. Other legislation and regulatory actions and proposals could also impact non-derivative cash products that our products and services support, including, for example, bond pricing.

These legislative and regulatory efforts may significantly increase the cost of entering into OTC derivative contracts and reduce the variety of derivatives traded, thereby decreasing the use of such instruments by the market participants who are our customers. Legislative and regulatory changes may also lead to market participants terminating the derivatives activity for which they use our products and

 

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services, or moving that activity to other entities that do not use our products and services. If our customers reduce their use of our products and services relating to derivatives as a result of such legislation and regulations, it could have a material adverse effect on our business, financial condition and results of operations.

These legislative and regulatory efforts could also cause some or all of our products or services to become obsolete, reduce demand for our products or services or increase our expenses of providing products or services to customers, any of which could have a material adverse impact on our business, financial condition or results of operations. We may not be as well equipped to respond to such changes as some of our competitors and may lose any existing first-mover advantage. Some of our larger, more established competitors may have the financial and human resources to adapt to such changes quickly. Other smaller competitors may be able to move quickly to adopt new technologies or create products or services to capitalize on such changes. Delays in adapting our products and services to legislative and regulatory changes could harm our reputation and have an adverse impact on our business, financial condition and results of operations.

For example, our trade processing business could be negatively affected by a shift towards further standardization in the derivatives markets, resulting in part from the new regulatory regimes in the United States, the EU and other jurisdictions. Our processing business serves to facilitate confirmation and mutual agreement between parties to bespoke bilateral derivatives transactions. Due to the regulatory efforts outlined above and a movement towards centralized clearing and exchange or exchange-like trading, many of these products may become increasingly standardized, lessening the need for our services. Similarly, as a result of regulatory requirements or incentives, some of our customers may seek to achieve economically equivalent positions and exposures through futures products, rather than OTC derivatives. This trend towards “futurization” may diminish customer demand for our processing services.

Demand for our Information division services may also decline as a result of new derivatives regulations. For example, new U.S. rules promulgated by the U.S. Commodity Futures Trading Commission (the “CFTC”) and proposed by the U.S. Securities and Exchange Commission (the “SEC”) require public dissemination of certain information about OTC derivative transactions reported to trade repositories, with the effect that customers may have more access to free, publicly available information about pricing and other salient trade terms. Additional transparency in the market may also be facilitated by other types of market intermediaries, including central counterparties and electronic trading platforms. To the extent customers are able to process, interpret and rationalize this information without the help of third parties, demand for our services may decline. Similar trade reporting regimes are expected for OTC derivatives in non-U.S. jurisdictions, where we would expect the impact on customer demands to be similar to those anticipated in the United States, and for other instruments, for example bonds in Europe.

We may become subject to increased regulation of our services, including our benchmarking, pricing and processing services.

As part of global regulatory reform efforts, including those discussed above, we may become subject to increased regulation of our services, which could increase our costs and decrease our profitability. For example, on September 13, 2013, the European Commission proposed draft legislation to establish regulation of benchmarks, including LIBOR and commodity benchmarks. The draft would require benchmark administrators to be authorized and subject to ongoing supervision by EU regulators, and supervised entities in the EU may only use benchmarks as a reference in a financial instrument if the benchmark is provided by an entity authorized in the EU or a third country deemed equivalent. Although we already intend to comply with the benchmark principles established by the International Organization of Securities Commissions, because of the nature of our operations, we may be deemed to be a “benchmark administrator” and subject to additional direct regulation under the authority of the

 

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European Commission. We are subject to limited direct regulation currently (primarily around our processing, compression and transaction reporting businesses which are subject to supervision by the United Kingdom’s Financial Conduct Authority), and therefore direct regulation would impose new compliance burdens, which could negatively impact our profitability.

We could also become subject to further direct regulation as a result of the “matching” services that we provide for the confirmation of OTC derivatives transactions. For example, under the SEC’s proposed standards for clearing agency operation and governance, intermediating organizations such as ours that capture trade information and perform an independent comparison of that information in order to confirm each party’s terms could be considered clearing agencies and required to register with the SEC, rendering them subject to direct regulation as clearing agencies. If we were required to register as a clearing agency with the SEC it would bring with it significant new regulatory compliance burdens; such burdens could negatively impact our profitability. As derivatives regulations in Europe and Asia continue to evolve, similar oversight may come into effect, creating additional compliance costs.

Similarly, existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, may impose limits on our collection and use of certain kinds of information and our ability to communicate such information effectively to our customers. Laws relating to e-commerce, electronic and mobile communications, privacy and data protection, anti-money laundering, direct marketing and digital advertising and the use of public records have also become more prevalent in recent years. It is difficult to predict the substance of new international laws and regulations in this area, how they will be construed by the relevant courts or the extent to which any changes may adversely affect us, either directly or via regulation of our customers. Existing and proposed legislation and regulation, some of which may be conflicting on a global basis (such as U.S. Data Privacy regulation, the EU Privacy directives and similar laws or U.S. derivatives regulations and their cross-border application, as compared to similar regulations and possible cross-border applications in non-U.S. jurisdictions), may also increase our cost of doing business or require us to change some of our existing business practices. We could be subject to fines or penalties as well as reputational harm for any violations.

Acquisitions that we have completed and any future acquisitions, strategic investments, partnerships or alliances may be difficult to integrate or identify, divert the attention of key management personnel, disrupt our business, dilute shareholder value and adversely affect our financial results, including impairment of goodwill and other intangible assets.

Acquisitions have been an important part of our growth strategy. We have acquired, and in the future may acquire or make strategic investments in, complementary businesses, technologies or services or enter into strategic partnerships or alliances with third parties to enhance our business. These types of transactions involve numerous risks, including:

 

making incorrect assumptions regarding the future results of acquired businesses, technologies or services or expected cost reductions or other synergies expected to be realized as a result of acquiring businesses, technologies or services;

 

difficulties in integrating operations, technologies, accounting and personnel;

 

difficulties in supporting and transitioning customers of our acquired companies or strategic partners;

 

diversion of financial and management resources from existing operations;

 

entering new markets;

 

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potential loss of key team members;

 

inability to generate sufficient revenue to offset transaction costs;

 

unanticipated liabilities;

 

failure to implement or remediate controls, procedures and policies appropriate for a public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies; and

 

payment of more than fair market value for an acquired company or assets.

If any of the above risks are realized, we might fail to achieve the expected benefits or strategic objectives of any acquisition we undertake. Any such failure to integrate an acquired company or impairment of all or a portion of goodwill and other intangible assets of any such company could have a material adverse impact on our consolidated balance sheet and consolidated statements of income.

It is also possible that we may not identify suitable acquisition, strategic investment or partnership or alliance candidates, or if we do identify suitable candidates, we may not be able to complete transactions on terms commercially acceptable to us, if at all. Our inability to identify suitable acquisition targets or strategic investments, partners or alliances, or our inability to complete such transactions, may negatively affect our competitiveness and growth prospects. Moreover, if we fail to evaluate acquisitions, alliances, partnerships or investments adequately, we may not achieve the anticipated benefits of any such transaction and we may incur costs in excess of what we anticipate.

We may also incur earn-out and contingent consideration payments in connection with future acquisitions, which could result in a higher than expected impact on our future earnings. In addition, we may finance future transactions through debt financing, including significant draws on our revolving credit facility, the issuance of our equity securities, the use of existing cash, cash equivalents or investments or a combination of the foregoing. Acquisitions financed with debt could require us to dedicate a substantial portion of our cash flow to principal and interest payments and could subject us to restrictive covenants. Acquisitions financed with the issuance of our equity securities would be dilutive, which could affect the market price of our common shares. Future acquisitions financed with our own cash could deplete the cash and working capital available to fund our operations adequately. Difficulty borrowing funds, selling securities or generating sufficient cash from operations to finance our activities may have a material adverse effect on our results of operations.

Our relationships with third-party service providers, including market data vendors, trade order, risk, accounting and portfolio management service providers and other market participants, may not be successful or may change, which could adversely affect our results of operations.

We have commercial relationships with third-party service providers whose capabilities complement our own, including market data vendors, trade order, risk, accounting and portfolio management service providers and other market participants. In some cases, these providers are also our competitors. A significant portion of our products and services are developed using third-party service providers’ data or services, or are made available to our customers or are integrated for our customers’ use through information and technology solutions provided by such third-party service providers. The priorities and objectives of these providers, particularly those that are our competitors, may differ from ours, which may make us vulnerable to unpredictable price increases and may cause some service providers not to renew certain agreements. Moreover, providers that are not currently our competitors, including one or more of our key providers, may become competitors or be acquired by or merge with a

 

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competitor in the future, any of which could reduce our access over time to the information and technology solutions provided by those companies. For example, as we expand our product and service offerings, whether through organic growth or acquisitions, we may launch products and services that compete with providers that are not currently our competitors, which could negatively impact our existing relationships. If we do not obtain the expected benefits from our relationships with third-party service providers or if a substantial number of our third-party service providers or any key service providers were to withdraw their services, we may be less competitive, our ability to offer products and services to our customers may be negatively affected, and our results of operations could be adversely impacted.

In addition, we rely on other third-party service providers for management of our data centers, telecommunications, data processing, software development and certain human resources functions. If we are unable to sustain commercially acceptable arrangements with these service providers or find substitutes or alternative sources of service, our business, financial condition or results of operations could be adversely affected.

Third parties may claim that we infringe upon their intellectual property rights.

We are significantly dependent on technology, processes, methodologies and information, as well as the intellectual property rights related to them. Companies in our industry, including our competitors and potential competitors, have in recent years increasingly pursued patent and other intellectual property protection for their data, technologies and business methods. If any third party owns a patent or other intellectual property covering any of our data, technologies or business methods, we could be sued for infringement. Furthermore, there is always a risk that third parties will sue us for infringement or misappropriation of trademarks, copyrights or trade secrets, or otherwise challenge our use of technology, processes, methodologies or information.

We do not actively monitor third-party patents and patent applications that may be relevant to our technologies or business methods, and it is not possible for us to detect all potentially relevant patents and patent applications. Since the patent application process can take several years to complete, there may be currently pending applications, unknown to us, that may later result in issued patents that cover our products and technologies. As a result, we may infringe existing and future third-party patents of which we are not aware.

From time to time, we may receive offers to license, notices of claims or threats from third parties alleging infringement or potential infringement of their intellectual property. The number of these claims may grow as our business expands. We have made and may make expenditures related to the use of certain intellectual property rights as part of our strategy to manage this risk.

Responding to claims of infringement, misappropriation or other violation of intellectual property rights, regardless of merit, can consume valuable time, result in costly litigation and delay certain operations of our business. We may be forced to settle such claims on unfavorable terms, and there can be no assurance that we would prevail in any litigation or proceeding arising from such claims if such claims are not settled. We may be required to pay damages and legal expenses, stop providing or using the affected technologies, processes, methodologies or information, redesign our products and services or enter into royalty and licensing agreements. There can be no assurance that any royalty or licensing agreements will be made, if at all, on terms that are commercially acceptable to us. Such litigation or proceedings could result in the loss or compromise of our intellectual property rights. We have in the past and may also be in the future called upon to defend partners, customers, suppliers or distributors against such third-party claims under indemnification clauses in our agreements. Any such outcomes could have a material adverse effect on our business, financial condition and results of operations.

 

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Failure to protect our intellectual property and confidential information adequately, in the United States and abroad, could adversely affect our business and results of operations.

Our success depends in part on our proprietary technology, processes, methodologies and information. We rely on a combination of trademark, trade secret, patent, copyright, misappropriation and domain name laws and all other intellectual property laws to establish, maintain and protect our intellectual property and proprietary rights in such technology, processes, methodologies and information. These laws are subject to change at any time and could further restrict our ability to protect our intellectual property and proprietary rights. In addition, the existing laws of certain countries in which we operate may not protect our intellectual property and proprietary rights to the same extent as do the laws of the United States. Even if we are able to obtain intellectual property rights, there is no guarantee that such rights will provide adequate protection of our proprietary technology, processes, methodologies or information, a competitive advantage to our business or deterrence against infringement, misappropriation or other violations of our intellectual property by competitors, former employees or other third parties. In addition, third parties may try to challenge, invalidate or circumvent our rights and protections.

We may be required to spend significant resources to monitor, enforce or protect our intellectual property and proprietary rights. Despite such efforts, we may not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property and proprietary rights. Even if we attempt to enforce or protect our intellectual property and proprietary rights or determine the validity and scope of the proprietary rights of others through litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities or administrative bodies in the United States or abroad, it may require considerable cost, time and resources to do so, and there is no guarantee that we would be successful in such litigation or proceedings. In the past, we have sent cease and desist letters to third parties to enforce our trademark rights, but there can be no guarantee that such actions will be successful. If we fail to enforce our intellectual property or proprietary rights, our competitive position could suffer. Furthermore, our intellectual property rights may not prevent competitors from independently developing or securing rights to products or services that are similar to or duplicative of ours, using trademarks that are similar to ours in different fields of goods and services, reverse engineering our technologies or designing around our patents. Even if we are able to enter into licensing or restricted use agreements with business partners, or coexistence agreements with third-party trademark owners, such parties may breach the terms of these agreements. Any failure to establish, maintain or protect our intellectual property or proprietary rights could have a material adverse effect on our business, financial condition or results of operations.

We further attempt to protect our confidential and proprietary information, trade secrets and know-how by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties, such as customers and vendors, to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential or proprietary information, trade secrets, know-how or other intellectual property and may not provide an adequate remedy in the event of such unauthorized use or disclosure.

Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates.

Although we report our results of operations in U.S. dollars, a portion of our revenue and expenses are denominated in currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenue and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenue,

 

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operating profit and the value of balance sheet items originally denominated in other currencies. These changes cause our growth in consolidated earnings stated in U.S. dollars to be higher or lower than our growth in local currency when compared against other periods.

As we continue to leverage our global delivery model, more of our expenses will be incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies against the U.S. dollar could increase costs for delivery of services at off-shore sites by increasing labor and other costs that are denominated in local currency. There can be no assurance that our contractual provisions will offset their impact, or that our currency hedging activities, which are designed to partially offset this impact, will be successful. Consequently, our results of operations may be materially adversely affected. In addition, our currency hedging activities are themselves subject to risk. These include risks related to counterparty performance under hedging contracts.

Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.

We are subject to numerous, and sometimes conflicting, legal regimes on matters as diverse as anticorruption, import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, anti-competition, data privacy and labor relations. For example, our operations in the United States are subject to U.S. laws on these diverse matters, which are different in several respects from the laws of the United Kingdom and India where we have significant operations. We also have operations in emerging market jurisdictions where legal systems may be less developed or familiar to us. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Violations of one or more of these regulations in the conduct of our business could result in significant fines, criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our customers also could result in liability for significant monetary damages, fines or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to process information and allegations by our customers that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights.

In particular, in many parts of the world, including countries in which we operate or seek to expand, practices in the local business community may not conform to international business standards and could violate anticorruption laws or regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010. Our employees, subcontractors, agents, joint venture partners and other third parties with which we associate could take actions that violate policies or procedures designed to promote legal and regulatory compliance or applicable anticorruption laws or regulations. Violations of these laws or regulations by us, our employees or any of these third parties could subject us to criminal or civil enforcement actions (whether or not we participated or knew about the actions leading to the violations), including fines or penalties, disgorgement of profits and suspension or disqualification from work, including U.S. federal contracting, any of which could materially adversely affect our business, including our results of operations and our reputation.

Operating globally involves challenges that we may not be able to meet and that may adversely affect our ability to grow.

As of December 31, 2013, we had offices in 10 countries, and we expect the number of countries in which we operate to increase as we seek out growth opportunities in new geographic areas, including emerging markets and developing economies. There are certain risks inherent in doing business

 

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globally which may adversely affect our business and ability to grow. These risks include difficulties in penetrating new markets due to established and entrenched competitors, difficulties in developing products and services that are tailored to the needs of local customers, lack of local acceptance or knowledge of our products and services, lack of recognition of our brands, unavailability of joint venture partners or local companies for acquisition, instability of international economies and governments, exposure to adverse government action in countries where we may conduct reporting activities, changes in laws and policies affecting trade and investment in other jurisdictions, restrictions or limitations on outsourcing contracts or services abroad, and exposure to varying legal standards, including intellectual property protection laws. Adverse developments in any of these areas could cause our actual results to differ materially from expected results. Expanding our business into emerging markets and developing economies may also present additional risks beyond those associated with more developed international markets. In any emerging markets and developing economies, we may face the risks of working in cash-based economies, dealing with inconsistent government policies and encountering sudden currency revaluations.

We may be required to take future impairment charges that would reduce our reported assets and earnings.

Goodwill and other identifiable intangible assets comprise a substantial portion of our total assets. We are required under IFRS to test our goodwill and identifiable intangible assets with indefinite lives for impairment on an annual basis. We also are required by IFRS to perform an interim or periodic review of our goodwill and all identifiable intangible assets if events or changes in circumstances indicate that impairment may have occurred. Impairment testing requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. Economic, legal, regulatory, competitive, contractual and other factors as well as changes in our share price and market capitalization may affect these assumptions. In 2013, we incurred a $53.5 million impairment charge related to our BOAT, Markit Hub and MOD cash generating units. If future testing indicates that impairment has occurred relative to current fair values, we may be required to record a non-cash impairment charge in the period the determination is made. Recognition of an impairment would reduce our reported assets and earnings.

International hostilities, terrorist activities, natural disasters, pandemics and infrastructure disruptions could prevent us from effectively serving our customers and thus adversely affect our results of operations.

Acts of terrorist violence, political unrest, armed regional and international hostilities and international responses to these hostilities, natural disasters, including hurricanes or floods, global health risks or pandemics or the threat of or perceived potential for these events could have a negative impact on us. These events could adversely affect our customers’ levels of business activity and precipitate sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our people and our physical facilities and operations around the world, whether the facilities are ours or those of our third-party service providers or customers. By disrupting communications and travel and increasing the difficulty of obtaining and retaining highly skilled and qualified personnel, these events could make it difficult or impossible for us to deliver products and services to our customers. Extended disruptions of electricity, other public utilities or network services at our facilities, as well as system failures at our facilities or otherwise, could also adversely affect our ability to serve our customers. We may be unable to protect our people, facilities and systems against all such occurrences. We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts and wars. If these disruptions prevent us from effectively serving our customers, our results of operations could be adversely affected.

 

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Changes in our rates of taxation, and audits, investigations and tax proceedings could have a material adverse effect on our results of operations and financial condition.

We are subject to direct and indirect taxes in numerous jurisdictions. We calculate and provide for such taxes in each tax jurisdiction in which we operate. The amount of tax we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We will seek to run Markit Ltd. in such a way that it is and remains tax resident in the United Kingdom. We have taken and will continue to take tax positions based on our interpretation of tax laws, but tax accounting often involves complex matters and judgment is required in determining our worldwide provision for taxes and other tax liabilities. Although we believe that we have complied with all applicable tax laws, there can be no assurance that a taxing authority will not have a different interpretation of the law and assess us with additional taxes.

We are subject to ongoing tax audits in various jurisdictions. Tax authorities have disagreed, and may in the future disagree, with our judgments. We regularly assess the likely outcomes of these audits to determine the appropriateness of our tax liabilities. However, our judgments might not be sustained as a result of these audits, and the amounts ultimately paid could be different from the amounts previously recorded. In addition, our effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. Tax rates in the jurisdictions in which we operate may change as a result of macroeconomic, political or other factors. Increases in the tax rate in any of the jurisdictions in which we operate could have a negative impact on our profitability. In addition, changes in tax laws, treaties or regulations, or their interpretation or enforcement, may be unpredictable, particularly in less developed markets, and could become more stringent, which could materially adversely affect our tax position. Any of these occurrences could have a material adverse effect on our results of operations and financial condition.

Certain Risks Relating to Our Common Shares and the Offering

 

 

There is no existing market for our common shares, and we do not know whether one will develop to provide you with adequate liquidity. If our share price fluctuates after this offering, you could lose a significant part of your investment.

Prior to this offering, there has not been a public market for our common shares. If an active trading market does not develop, you may have difficulty selling any of our common shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on Nasdaq, or otherwise, or how liquid that market might become. The initial public offering price for the common shares will be determined by negotiations among us, the selling shareholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our common shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our common shares may be influenced by many factors, some of which are beyond our control, including:

 

regulatory or legal developments in the countries in which we operate;

 

actual or anticipated variations in our operating results;

 

the failure of financial analysts to cover our common shares after this offering;

 

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changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;

 

changes in market valuation of similar companies;

 

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or joint ventures;

 

introduction of new products, services or technologies by our competitors;

 

significant lawsuits or disputes in which we are a party;

 

future sales of our shares by us or our shareholders;

 

general economic, industry and market conditions;

 

additions and departures of key personnel;

 

investor perceptions of us and the financial services industry;

 

failure of any of our products or services to achieve or maintain market acceptance; and

 

the other factors described in this “Risk Factors” section.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance.

Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could cause the market price of our shares to decline.

Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could depress the market price of our common shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our shares.

Under our memorandum of association and bye-laws that will take effect upon completion of our corporate reorganization, we are authorized to issue up to 3,000,000,000 common shares, of which 178,868,020 common shares will be issued and outstanding immediately following this offering. We, the selling shareholders, our executive officers and directors, and most of our other existing shareholders have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into, or exchangeable or exercisable for, any shares of our share capital during the 180-day period following the date of this prospectus. Subject to limitations, approximately 35,965,560 shares will become eligible for sale upon expiration of the 180-day lock-up period. Although we have been advised that there is no present intent to do so, the underwriters may, in their sole discretion and without notice, release all or any portion of the common shares from the restrictions in any of the lock-up agreements described above. In

 

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addition, shares issued or issuable upon exercise of options and restricted (unvested) shares vested as of the expiration of the lock-up period will be eligible for sale at that time. Sales of common shares by our shareholders could have a material adverse effect on the trading price of our shares.

Upon consummation of this offering, we will also enter into a registration rights and lock-up agreement with certain of our existing shareholders and, if CPPIB purchases common shares in this offering, with CPPIB. See “Related Party Transactions — Registration Rights Agreement” for a description of the terms of this agreement. Following the expiration of the lock-up periods set forth in that agreement, these shareholders will have the right to demand that we file a registration statement covering the offer and sale of their securities under the Securities Act of 1933, as amended (the “Securities Act”), for as long as each holds unregistered securities. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act. Any sales of securities by these shareholders could have a material adverse effect on the trading price of our common shares. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our common shares.

We also intend to file a registration statement in respect of all common shares that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriting (Conflicts of Interest)” section of this prospectus.

Transformation into a public company may increase our costs and disrupt the regular operations of our business.

This offering will have a significant transformative effect on us. Our business historically has operated as a privately owned company, and we expect to incur significant additional legal, accounting, tax (by virtue of U.K. National Insurance requirements), reporting and other expenses as a result of having publicly traded common shares. We will also incur costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, increased directors and officers insurance, investor relations and various other costs of a public company.

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), as well as rules implemented by the SEC and Nasdaq. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified Board of Directors.

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our business. Any of these effects could harm our business, financial condition or results of operations.

In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect our share price.

 

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As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain disclosure and corporate governance standards applicable to U.S. issuers. This may be less favorable to holders of our common shares.

As a foreign private issuer, we are not subject to the same disclosure and procedural requirements as domestic U.S. registrants under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For instance, we are not required to prepare and file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, we are not subject to the proxy requirements under Section 14 of the Exchange Act, and we are not generally required to comply with Regulation FD, which restricts the selective disclosure of material nonpublic information. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we will be permitted to disclose compensation information for our executive officers on an aggregate, rather than an individual, basis because individual disclosure is not required under Bermuda law. We do, however, intend to furnish our shareholders with annual reports containing financial statements audited by our independent auditors and to make available to our shareholders quarterly reports containing unaudited financial information for each of the first three quarters of each fiscal year.

We are also exempt from certain corporate governance standards applicable to U.S. issuers. For example, Rule 5605 of Nasdaq’s corporate governance listing rules (the “Nasdaq Rules”) requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to follow Bermuda practice in lieu of the above requirements, under which there is no requirement that a majority of our directors be independent. See “Management — Corporate Governance Practices.”

We will lose our foreign private issuer status if we fail to meet the requirements under U.S. securities laws necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to prepare and report our consolidated financial statements in accordance with generally accepted accounting principles in the United States rather than IFRS, and that transition would involve significant cost and time. We would also be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on Nasdaq that are available to foreign private issuers.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the requirement of Section 404(b) of the Sarbanes-Oxley Act that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting. We cannot predict if investors will find our common shares less attractive because we will rely on these exemptions. If some investors find our common shares less attractive, there may be a less active trading market for our common shares and our share price may be more volatile. We could be an emerging growth company for up to five years. See “Prospectus Summary—Corporate Information.”

 

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Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control.

After giving effect to our corporate reorganization and this offering, our shareholders who own more than 5% of our common shares (and entities affiliated with them) and our directors and executive officers will collectively own approximately 42.7% of our issued and outstanding common shares. As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including amendments to our bye-laws, the election of directors and the approval of mergers or other extraordinary transactions. In addition, they could influence our dividend policy. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares.

Certain affiliates of the underwriters of this offering are also selling shareholders and, therefore, have interests in this offering beyond customary underwriting discounts and commissions.

Certain affiliates of the underwriters of this offering are participating as selling shareholders in this offering. There may be a conflict of interest between their interests as selling shareholders (for example, to maximize the value of their investment) and their respective interests as underwriters (for example, in negotiating the initial public offering price) as well as your interest as a purchaser. As participants in this offering that are seeking to realize the value of their investment in us, these underwriters have interests beyond customary underwriting discounts and commissions.

We currently do not anticipate paying any cash dividends.

We currently intend to retain our future earnings, if any, to repay indebtedness and to fund the development and growth of our business. We currently do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only source of gain on an investment in our common shares. The payment of any future dividends will be determined at the discretion of our Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, business conditions, corporate law requirements and other factors. See “Dividends and Dividend Policy” and “Description of Share Capital.”

Volatility in our share price could subject us to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because financial services companies have experienced significant share price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our financial condition or results of operations.

We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of

 

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shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. A number of our directors and some of the named experts referred to in this prospectus are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Bermuda law differs from the laws in effect in the United States and may afford less protection to holders of our common shares.

We are organized under the laws of Bermuda. As a result, our corporate affairs are governed by the Companies Act, which differs in some material respects from laws typically applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, amalgamations, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. Generally, the duties of directors and officers of a Bermuda company are owed to the company only. Shareholders of Bermuda companies typically do not have rights to take action against directors or officers of the company and may only do so in limited circumstances. Class actions are not available under Bermuda law. The circumstances in which derivative actions may be available under Bermuda law are substantially more proscribed and less clear than they would be to shareholders of U.S. corporations. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company. Additionally, under our bye-laws and as permitted by Bermuda law, each shareholder has waived any claim or right of action against our directors or officers for any action taken by directors or officers in the performance of their duties, except for actions involving fraud or dishonesty. In addition, the rights of holders of our common shares and the fiduciary responsibilities of our directors under Bermuda law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States, particularly the State of Delaware. Therefore, holders of our common shares may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction within the United States.

We have anti-takeover provisions in our bye-laws that may discourage a change of control.

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions provide for:

 

a classified Board of Directors with staggered three-year terms;

 

directors only to be removed for cause;

 

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restrictions on the time period in which directors may be nominated;

 

our Board of Directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and

 

an affirmative vote of 66 2/3% of our voting shares for certain “business combination” transactions which have not been approved by our Board of Directors.

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Share Capital” for a discussion of these provisions.

If we are, or were to become, a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, U.S. investors in our common shares would be subject to certain adverse U.S. federal income tax consequences.

In general, a non-U.S. corporation will be a PFIC for any taxable year if (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. We do not expect to be a PFIC for our current taxable year or in the foreseeable future. However, there can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. investor held common shares, such investor would be subject to certain adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, an additional interest charge on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. If we are characterized as a PFIC, a U.S. investor may be able to make a “mark-to-market” election with respect to our common shares that would alleviate some of the adverse consequences of PFIC status. Although U.S. tax rules also permit a U.S. investor to make a “qualified electing fund” election with respect to the shares of a foreign corporation that is a PFIC if the foreign corporation provides certain information to its investors, we do not currently intend to provide the information that would be necessary for a U.S. investor to make a valid “qualified electing fund” election with respect to our common shares. See “Taxation––U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

 

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Cautionary Statement Regarding Forward-Looking Statements

This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others, or the negative of these words.

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:

 

our operation in highly competitive markets;

 

our inability to develop successful new products and services;

 

any design defects, errors, failures or delays associated with our products or services;

 

declining activity levels in the securities or derivatives markets, weak or declining financial performance of financial market participants or the failure of market participants;

 

our generation of a significant percentage of our total revenue from financial institutions that are also our shareholders;

 

our dependence on third parties for data and information services;

 

consolidation in our end customer market;

 

the impact of cost-cutting pressures across the financial services industry;

 

our customers becoming more self-sufficient in terms of their needs for our products and services;

 

ongoing antitrust investigations and litigation arising from our activities relating to credit default swaps;

 

long selling cycles to secure new contracts that require us to commit significant resources before we receive revenue;

 

our reliance on network systems and the Internet; and

 

other risk factors discussed under “Risk Factors.”

Moreover, new risks emerge from time to time as we operate in a very competitive and rapidly changing environment. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

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You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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Use of Proceeds

The selling shareholders, including certain employees and members of our management, will receive all of the net proceeds from the sale of the common shares offered under this prospectus. We will not receive any proceeds from the sale of common shares in this offering.

Dividends and Dividend Policy

We have not adopted a dividend policy with respect to future dividends, and we do not currently intend to pay cash dividends on our common shares. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.

Additionally, we are subject to Bermuda legal constraints that may affect our ability to pay dividends on our common shares and make other payments. Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of its assets would thereby be less than its liabilities.

Under our bye-laws, each common share is entitled to dividends when dividends are declared by our Board of Directors, subject to any preferred dividend right of the holders of any preference shares.

 

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Corporate Reorganization

Markit Ltd. is a Bermuda exempted company that was formed for the purpose of making this offering. Pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering, all of the interests in Markit Group Holdings Limited will ultimately be exchanged for newly issued common shares of Markit Ltd. as described below, and, as a result, Markit Group Holdings Limited will become a wholly-owned subsidiary of Markit Ltd. Therefore, investors in this offering will only acquire, and this prospectus only describes the offering of, common shares of Markit Ltd.

We refer to the reorganization pursuant to which Markit Ltd. will ultimately acquire all of the interests in Markit Group Holdings Limited in exchange for common shares of Markit Ltd., the amendment of Markit Group Holdings Limited’s current articles of association and the adoption of Markit Ltd.’s new bye-laws as our “corporate reorganization.”

The Scheme

 

 

The corporate reorganization will be undertaken pursuant to a scheme of arrangement under Part 26 of the English Companies Act 2006 (the “Scheme”) approved by the High Court of Justice of England and Wales (the “Court”) so that Markit Group Holdings Limited becomes a wholly and directly owned subsidiary of Markit Ltd. and former Markit Group Holdings Limited shareholders become shareholders of Markit Ltd. Pursuant to the Scheme, the overall ownership of the company held historically through shareholders’ interests in Markit Group Holdings Limited will be replicated in the shares to be held by such shareholders in Markit Ltd. Holders of Markit Group Holdings Limited options will also have their interests replicated in corresponding interests in Markit Ltd.

The Scheme will be implemented by cancelling and extinguishing Markit Group Holdings Limited shares, capitalizing the reserve created by the cancellation and issuing new Markit Group Holdings Limited shares to Markit Ltd. In exchange for their Markit Group Holdings Limited shares, Markit Group Holdings Limited shareholders will receive one share in Markit Ltd. for every share they hold in Markit Group Holdings Limited. Pursuant to the Scheme, holders of voting ordinary shares in Markit Group Holdings Limited will receive common shares in Markit Ltd. and holders of non-voting ordinary shares in Markit Group Holdings Limited will receive non-voting common shares in Markit Ltd., in each case, that entitle them to the same economic and voting rights (to the extent permitted by Bermuda law) in Markit Ltd. as they had in Markit Group Holdings Limited prior to the Scheme. Immediately prior to the closing of this offering, the non-voting common shares of Markit Ltd. will be reclassified as common shares in Markit Ltd. and the rights of all common shares will be varied such that all shareholders in Markit Ltd. will hold common shares with the rights as further described in this prospectus. See “The reclassification and variation of rights of shares in Markit Ltd.” below.

The Scheme will require the sanction of the Court as well as the approval of Markit Group Holdings Limited shareholders at meetings convened by the Court and at a separate general meeting of shareholders of Markit Group Holdings Limited convened to approve certain matters in connection with the Scheme.

Necessary approvals

The implementation of the Scheme will be conditional upon the following:

 

certain matters in connection with the Scheme and this offering being approved by certain shareholders of Markit Group Holdings Limited pursuant to the Shareholders’ Agreement described in “Related Party Transactions—Shareholders’ Agreement and Current Articles of Association”;

 

the Scheme being approved by a majority in number representing three-fourths in value of those Markit Group Holdings Limited shareholders present and voting, either in person or by proxy at the

 

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  meetings convened by order of the Court pursuant to sections 895-899 of the English Companies Act 2006;

 

a special resolution to approve certain matters in connection with the Scheme being duly passed at general meetings of Markit Group Holdings Limited shareholders by a majority of not less than three-fourths of the votes cast;

 

the Scheme being sanctioned and the reduction of capital of Markit Group Holdings Limited provided for by the Scheme being confirmed by the Court at a hearing convened for that purpose; and

 

an office copy of the Order of the Court sanctioning the Scheme under Part 26 of the English Companies Act 2006 having been delivered to the Registrar of Companies in England and Wales for registration and the order under section 648 of the English Companies Act 2006 confirming the reduction of capital pursuant to the Scheme and the statement of capital under section 649 of the English Companies Act 2006 having been delivered to the Registrar of Companies in England and Wales.

The Scheme can only become effective if all conditions to the Scheme, including approvals at the shareholder meetings referred to above and the sanction of the Court, have been satisfied or, where appropriate, waived.

In addition, the directors of Markit Group Holdings Limited will not prior to or after the Court hearing referred to above take the steps necessary to enable the Scheme to become effective unless, at the relevant time, they consider that the Scheme continues to be in the best interests of Markit Group Holdings Limited shareholders as a whole.

If the Scheme is sanctioned by the Court and the conditions to the Scheme are satisfied or waived, it is expected that the Scheme will become effective on the date one business day prior to the date of this prospectus. This date is, however, subject to change.

If the Scheme becomes effective, it will be binding on all Markit Group Holdings Limited shareholders, including any shareholders who did not vote to approve the Scheme or who voted against the Scheme.

Ancillary matters

Markit Group Holdings Limited will, subject to the special resolution to approve certain matters in connection with the Scheme referred to under “—Necessary approvals” being duly passed and conditional upon the Scheme becoming effective, adopt new articles of association appropriate for a wholly-owned subsidiary company. Upon the completion of the reorganization, new bye-laws will be put in place for Markit Ltd.

The reclassification and variation of rights of shares in Markit Ltd.

Following the effective time of the Scheme and until the reclassification described below occurs, Markit Ltd. will have two classes of shares—common shares and non-voting common shares. These two classes of shares will entitle their holders to the same economic and voting rights (to the extent permitted by Bermuda law) in Markit Ltd. as they had in Markit Group Holdings Limited prior to the Scheme.

Following the Scheme becoming effective and immediately prior to the closing of this offering, the holders of the common shares and non-voting common shares issued pursuant to the Scheme will agree to the reclassification and variation of the rights of their shares and the adoption of bye-laws, which will result in a single class of common shares with the rights as further described in “Description of Share Capital.”

 

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Capitalization

The table below sets forth our cash and cash equivalents and total capitalization as of March 31, 2014, on an actual basis and on a pro forma basis to give effect to our corporate reorganization.

Investors should read this table in conjunction with the sections titled “Selected Consolidated Historical and Pro Forma Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, and the related notes thereto, included in this prospectus.

 

     As of March 31, 2014  
($ in millions)    Actual      Pro forma to give effect to
our corporate
reorganization(1)
 

Cash and cash equivalents(2)

     38.0         38.0   
                   

Current borrowings

     97.6         97.6   

Non-current borrowings

     519.1         519.1   

Total borrowings

     616.7         616.7   
                   

Share capital

     0.2         1.8   

Share premium

     374.3         —     

Other reserves

     24.8         397.5   

Retained earnings

     1,713.0         1,713.0   

Total equity

     2,112.3         2,112.3   
                   

Total capitalization(3)

     2,729.0         2,729.0   

 

(1) Gives effect to the exchange of all of the interests in Markit Group Holdings Limited for newly issued common shares of Markit Ltd. pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering. See “Corporate Reorganization.”

 

(2) Cash and cash equivalents does not give effect to the exercise of 1,759,520 outstanding options and the resulting issuance of common shares to certain selling shareholders in connection with the consummation of this offering. In connection with such option exercises, the company expects to receive approximately $28.4 million of cash proceeds.

 

(3) Total capitalization consists of total borrowings plus total equity.

 

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Selected Consolidated Historical and Pro Forma Financial Information

The following selected consolidated historical and pro forma financial information should be read in conjunction with the sections entitled “Corporate Reorganization,” “Presentation of Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and interim condensed consolidated financial statements of Markit Group Holdings Limited, including the notes thereto, included elsewhere in this prospectus.

We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. The selected consolidated historical financial information presented as of and for the years ended December 31, 2011, 2012 and 2013 has been derived from the audited consolidated financial statements of Markit Group Holdings Limited included elsewhere in this prospectus. Historical results for any prior period are not necessarily indicative of results expected in any future period. The selected consolidated historical financial information presented as of March 31, 2014 and for the three months ended March 31, 2013 and 2014 has been derived from the unaudited condensed consolidated interim financial statements of Markit Group Holdings Limited included elsewhere in this prospectus, which, in the opinion of our management, include all adjustments necessary to present fairly the results of operations and financial condition at the date and for the periods presented. The results for the three months ended March 31, 2014 are not necessarily indicative of the results of operations that you should expect for the entire year ending December 31, 2014 or any other period.

The selected consolidated historical financial information as of and for the years ended December 31, 2009 and 2010, which has been prepared in accordance with IFRS as issued by the IASB, is derived from the unaudited accounting data records of Markit Group Holdings Limited and is not included in the financial statements or notes thereto that are included elsewhere in this prospectus.

The unaudited pro forma financial information set forth below is derived from the audited and unaudited consolidated financial statements of Markit Group Holdings Limited appearing elsewhere in this prospectus and is based on assumptions as explained in the notes to the tables.

All our operations are continuing operations and we have not proposed or paid dividends in any of the periods presented.

 

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As of and for the

year ended

December 31,

   

As of and for the

three months

ended March 31,

 
($ in millions other than share and per share data)   2009     2010     2011     2012     2013     2013     2014  

Income statement data:

                                                       

Revenue

    478.1          668.4          762.5          860.6          947.9          227.4          259.4     

Operating profit

    153.8          213.2          229.7          224.7          230.1          84.1          59.8     

Profit for the period

    92.2          151.2          156.2          153.1         
147.0  
  
    58.3          39.8     

Profit attributable to equity holders

    79.0          102.1          125.8          125.0          139.4          50.7          39.8     

Earnings per share – basic

    4.54        5.72        7.03        7.03        8.02        2.96        2.25   

Earnings per share – diluted

    4.40        5.60        6.92        6.94        7.94        2.93        2.22   

Weighted average number of shares outstanding - basic

    17,402,924        17,860,713        17,892,921        17,771,624        17,387,598       
17,109,778
  
    17,672,836   

Weighted average number of shares outstanding - diluted

    17,963,330        18,234,779        18,173,083        18,002,012        17,555,076        17,281,723        17,871,939   

Pro forma earnings(1):

                                                       

Pro forma earnings per common share, basic

    0.45        0.57        0.70        0.70        0.80        0.30        0.23   

Pro forma earnings per common share, diluted

    0.44        0.56        0.69        0.69        0.79        0.29        0.22   

Pro forma weighted average number of shares used to compute pro forma earnings per common share, basic(2)

    174,029,240        178,607,130        178,929,210        177,716,240        173,875,980        171,097,780        176,728,360   

Pro forma weighted average number of shares used to compute pro forma earnings per common share, diluted(2)

    179,633,300        182,347,790        181,730,830        180,020,120        175,550,760        172,817,230        178,719,390   

Balance sheet data:

                                                       

Total assets

    2,275.1        2,526.6        2,648.3        3,151.3        3,199.9     

 

—  

  

 

 

3,271.2

  

Total equity/net assets

    1,752.9        1,907.3        2,031.4        1,929.7        2,055.9     

 

—  

  

 

 

2,112.3

  

Share capital

    0.2        0.2        0.2        0.2        0.2     

 

—  

  

 

 

0.2

  

Other financial data:

                                                       

Adjusted EBITDA(3)

    208.4        261.0        305.0        358.2        421.3     

 

90.8

  

 

 

116.7

  

Adjusted EBITDA margin(4)

    48.1     46.2     45.8     47.0     45.6     44.7     45.0

Adjusted Earnings(5)

    115.2        144.9        184.8        218.4        248.4       
47.5
  
   
72.9
  

Adjusted Earnings per share – diluted(6)

    6.41        7.95        10.17        12.13        14.15       
2.75
  
    4.08   

 

(1) Pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering, all of the interests in Markit Group Holdings Limited will ultimately be exchanged for newly issued common shares of Markit Ltd. See “Corporate Reorganization.”

 

(2) The pro forma weighted average common shares issued and outstanding has been calculated as if the ownership structure resulting from the corporate reorganization was in place since inception.

 

(3) In considering the financial performance of the business, management and our chief operating decision maker analyze the primary financial performance measure of Adjusted EBITDA in our business segments and at a company level. Adjusted EBITDA is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortization on fixed assets and intangible assets (including acquisition related intangible assets), acquisition related items, exceptional items, share-based compensation and net other gains or losses and excluding Adjusted EBITDA attributable to non-controlling interests. Adjusted EBITDA is not a measure defined by IFRS. The most directly comparable IFRS measure to Adjusted EBITDA is our profit for the period from continuing operations.

We believe Adjusted EBITDA, as defined above, is useful to investors and is used by our management for measuring profitability because it excludes the impact of certain items which have less bearing on our core operating performance. We believe that utilizing Adjusted EBITDA allows for a more meaningful comparison of operating fundamentals between companies within our industry by eliminating the impact of capital structure and taxation differences between the companies. We further adjust our profit for the following non-cash items: depreciation, amortization of intangible fixed assets, share-based compensation, and other gains and losses associated with foreign exchange variations.

 

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Since January 1, 2011 we acquired eight businesses for a total consideration of $640.2 million and have incurred significant acquisition-related expenses. These acquisition-related expenses include acquisition costs, fair-value adjustments to contingent consideration and amortization of intangible fixed assets. Adjusted EBITDA is important in illustrating what our core operating results would have been without the impact of non-operational acquisition related expenses.

We also adjust for exceptional items which are determined to be those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence, which includes non-cash items and items settled in cash. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. This is consistent with the way that financial performance is measured by management and reported to the Board and assists in providing a meaningful analysis of our operating performance.

Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an Adjusted EBITDA-related performance measure when reporting their results.

Adjusted EBITDA has limitations as an analytical tool. It is not a presentation made in accordance with IFRS, is not a measure of financial condition or liquidity and should not be considered as an alternative to profit or loss for the period determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider this performance measure in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS.

The following table reconciles our profit for the period from continuing operations to our Adjusted EBITDA for the periods presented:

 

    For the year ended December 31,       

For the three months  
ended March 31,  

 
($ in millions)   2009        2010        2011        2012        2013                2013               2014     

Profit for the period

    92.2           151.2           156.2           153.1           147.0           58.3          39.8     

Income tax expense

    44.4           43.8           50.6           42.7           63.7           20.8          15.6     

Finance costs – net

    17.2           18.2           22.9           28.9           19.4           5.0          4.4     

Depreciation and amortization – other

    32.4           48.2           62.7           66.7           86.0           19.8          23.3     

Amortization – acquisition

related

    5.7           28.5           34.4           46.2           50.1           12.5          14.2     

Acquisition related items

    5.1           (11.3)          4.8           0.9           (1.4)          _          2.8     

Exceptional items

    3.0           30.9           11.6           40.3           60.6           (3.1)         11.1     

Share-based compensation

    9.3           14.9           11.7           16.2           8.1           1.9          3.0     

Other losses/(gains) – net

    16.5           0.1           4.6           11.6           (0.7)          (12.9)         2.5     

Adjusted EBITDA attributable to

non-controlling interests

    (17.4)          (63.5)          (54.5)          (48.4)          (11.5)          (11.5)         _     

Adjusted EBITDA

        208.4               261.0               305.0               358.2           421.3           90.8          116.7     

 

(4) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

 

(5) In considering the financial performance of the business, management and our chief operating decision maker analyze the performance measure of Adjusted Earnings. Adjusted Earnings is defined as profit for the period from continuing operations before amortization of acquired intangibles, acquisition related items, exceptional items, share-based compensation, net other gains or losses and unwind of discount, less the tax effect of these adjustments and excluding Adjusted Earnings attributable to non-controlling interests. The most directly comparable IFRS measure to Adjusted Earnings is our profit for the period from continuing operations.

We believe Adjusted Earnings, as defined above, is useful to investors and is used by our management for measuring profitability because it represents a group measure of performance which excludes the impact of certain non-cash charges and other charges not associated with the underlying operating performance of the business, while including the effect of items that we believe affect shareholder value and in-year return, such as income tax expense and net finance costs.

Management uses Adjusted Earnings to (i) provide senior management a monthly report of our operating results that is prepared on an adjusted earnings basis; (ii) prepare strategic plans and annual budgets on an adjusted earnings basis; and (iii) review senior management’s annual compensation, in part, using adjusted performance measures.

 

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Adjusted Earnings is defined to exclude items which have less bearing on our core operating performance or are unusual in nature or infrequent in occurrence and therefore are inherently difficult to budget for or control. Adjusted Earnings measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an Adjusted Earnings-related performance measure when reporting their results.

In addition we use Adjusted Earnings for the purposes of calculating diluted Adjusted Earnings per share. Management uses diluted Adjusted Earnings per share to assess total company performance on a consistent basis at a per share level.

Adjusted Earnings has limitations as an analytical tool. Adjusted Earnings is not a presentation made in accordance with IFRS, is not a measure of financial condition or liquidity and should not be considered as an alternative to profit or loss for the period determined in accordance with IFRS or operating cash flows determined in accordance with IFRS. Adjusted Earnings is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider this performance measure in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS.

The following table reconciles our profit for the period from continuing operations to our Adjusted Earnings for the periods presented:

 

      

For the year ended December 31,   

   

For the three months   

ended March 31,   

 
($ in millions)      2009        2010        2011        2012        2013        2013        2014     

Profit for the period

       92.2           151.2           156.2           153.1           147.0           58.3           39.8      

Amortization – acquisition related

       5.7           28.5           34.4           46.2           50.1           12.5           14.2      

Acquisition related items

       5.1           (11.3)          4.8           0.9           (1.4)          –             2.8      

Exceptional items

       3.0           30.9           11.6           40.3           60.6           (3.1)          11.1      

Share-based compensation

       9.3           14.9           11.7           16.2           8.1           1.9           3.0      

Other losses/(gains) – net

       16.5           0.1           4.6           11.6           (0.7)          (12.9)          2.5      

Unwind of discount(a)

       0.7           3.4           8.9           9.3           12.4           3.5           2.5      

Tax effect of above adjustments

       (1.0)          (14.6)          (7.6)          (24.1)          (18.0)          (3.0)          (3.0)     

Adjusted Earnings attributable to non-controlling interests

       (16.3)          (58.2)          (39.8)          (35.1)          (9.7)          (9.7)          –        

Adjusted Earnings

             115.2                 144.9                 184.8                 218.4                 248.4                 47.5                  72.9       

(a)    Unwind of discount represents the non-cash unwinding of discount, recorded through finance costs – net in the income statement, primarily in relation to our share buyback liability, described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

 

(6) Adjusted Earnings per share – diluted is defined as Adjusted Earnings divided by the weighted average number of shares issued and outstanding, diluted.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based principally on the audited consolidated financial statements as of and for the years ended December 31, 2011, 2012 and 2013, and the unaudited condensed consolidated interim financial statements as of March 31, 2014 and for the three months ended March 31, 2013 and 2014, of Markit Group Holdings Limited, which appear elsewhere in this prospectus. The following discussion is to be read in conjunction with “Corporate Reorganization,” “Selected Consolidated Historical and Pro Forma Financial Information,” “Business” and the audited consolidated financial statements and unaudited condensed consolidated interim financial statements and the notes thereto, which appear elsewhere in this prospectus.

The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed elsewhere in this prospectus. See in particular “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Business Overview

 

 

Markit is a leading global diversified provider of financial information services. Our offerings enhance transparency, reduce risk and improve operational efficiency in the financial markets. Since we launched our business in 2003, we have become deeply embedded in the systems and workflows of many of our customers and continue to become increasingly important to our customers’ operations. We leverage leading technologies and our industry expertise to create innovative products and services across multiple asset classes. We provide pricing and reference data, indices, valuation and trading services, trade processing, enterprise software and managed services. Our end-users include front and back office professionals, such as traders, portfolio managers, risk managers, research professionals and other capital markets participants, as well as operations, compliance and enterprise data managers. We are highly responsive to evolving industry needs and work closely with market participants to develop new products and services. We have over 3,000 institutional customers globally, including banks, hedge funds, asset managers, accounting firms, regulators, corporations, exchanges and central banks. As of December 31, 2013, we had 22 offices in 10 countries.

Our Operating Segments

 

 

We organize our business in three segments: Information, Processing and Solutions.

Information segment

Our Information segment, which represented approximately 48.5% of our revenue in 2013, provides enriched content comprising pricing and reference data, indices and valuation and trading services across multiple asset classes and geographies through both direct and third-party distribution channels. Our Information segment products and services are used for independent valuations, research, trading, and liquidity and risk assessments. These products and services help our customers price instruments, comply with relevant regulatory reporting and risk management requirements, and analyze financial markets.

 

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Processing segment

Our Processing segment, which represented approximately 28.0% of our revenue in 2013, offers trade processing solutions globally for over-the-counter (“OTC”) derivatives, foreign exchange (“FX”) and syndicated loans. Our trade processing services enable buy-side and sell-side firms to confirm transactions rapidly, which increases efficiency by optimizing post-trade workflow, reducing risk, complying with reporting regulations and improving connectivity. We believe we are the largest provider of end-to-end multi-asset OTC derivatives trade processing services.

Solutions segment

Our Solutions segment, which represented approximately 23.5% of our revenue in 2013, provides configurable enterprise software platforms, managed services and hosted custom web solutions. Our offerings, which are targeted at a broad range of financial services industry participants, help our customers capture, organize, process, display and analyze information, manage risk and meet regulatory requirements.

Key Performance Indicators

 

 

We believe that revenue growth, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted Earnings are key measures to assess our financial performance. These measures demonstrate our ability to grow while maintaining profitability and generating strong positive cash flows over time.

Adjusted EBITDA and Adjusted Earnings are not measures defined by IFRS. The most directly comparable IFRS measure is our profit from continuing operations for the relevant period. These measures are not necessarily comparable to similarly referenced measures used by other companies. As a result, investors should not consider these performance measures in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with IFRS.

Revenue growth

We view period-over-period revenue growth as a key measure of our financial success. We measure revenue growth in terms of organic revenue growth, acquisition related revenue growth and foreign currency impact on revenue growth.

We define these components as follows:

 

Organic – Revenue growth from continuing operations from factors other than acquisitions and foreign currency fluctuations. We derive organic revenue growth from the development of new products and services, increased penetration of existing products and services to new and existing customers, price changes for our products and services and market driven factors such as increased trading volumes or changes in customer assets under management.

 

Acquisition related – Revenue growth from acquired businesses through the end of the fiscal year following the fiscal year in which the acquisition was completed. This growth results from our strategy of making targeted acquisitions that facilitate growth by complementing our existing products and services and addressing market opportunities.

 

Foreign currency – The impact on revenue growth resulting from the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates.

 

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Adjusted EBITDA and Adjusted EBITDA margin

We believe Adjusted EBITDA, as defined below, is useful to investors and is used by our management for measuring profitability because it excludes the impact of certain items which have less bearing on our core operating performance. Adjusted EBITDA measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an Adjusted EBITDA-related performance measure when reporting their results.

Adjusted EBITDA is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortization on fixed assets and intangible assets (including acquisition related intangible assets), acquisition related items, exceptional items, share-based compensation and net other gains or losses and excluding Adjusted EBITDA attributable to non-controlling interests.

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

Adjusted Earnings

We believe Adjusted Earnings, as defined below, is useful to investors and is used by our management for measuring profitability because it represents a group measure of performance which excludes the impact of certain non-cash charges and other charges not associated with the underlying operating performance of the business, while including the effect of items that we believe affect shareholder value and in-year return, such as income tax expense and net finance costs. Adjusted Earnings measures are frequently used by securities analysts, investors and other interested parties in their evaluation of companies comparable to us, many of which present an Adjusted Earnings-related performance measure when reporting their results.

Adjusted Earnings is defined as profit for the period from continuing operations before amortization of acquired intangibles, acquisition related items, exceptional items, share-based compensation, net other gains or losses and unwind of discount, less the tax effect of these adjustments and excluding Adjusted Earnings attributable to non-controlling interests.

Factors Affecting the Comparability of Our Results

 

 

Global operations

We are a global company with operations, as of March 31, 2014, primarily in the United Kingdom, the United States, Germany, Netherlands, India, Singapore, Canada, Australia, Japan and Hong Kong. As a result, our consolidated revenue and results of operations are affected by fluctuations in the exchange rates of the currencies of the countries in which we operate, primarily the U.S. dollar, pound sterling and euro. Our revenue is typically earned in these currencies, and our expenses across the company are typically incurred in these same currencies, providing a natural hedge to the exposure. Where this is not the case, we have implemented a strategy to hedge material, highly probable or committed foreign currency cash flows. We do not use financial derivatives for trading or other speculative purposes. We have not historically considered it necessary to, and we do not currently, hedge our balance sheet or capital exposures.

Product and service innovation

We plan to continue making investments to enhance our products, services and technical capabilities to create avenues for growth. The associated expenses consist primarily of personnel-related costs for our developers and other employees engaged in research and development. These expenses may vary depending on the number and scale of development projects in a particular period.

 

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Business combinations

Acquisitions are an important part of our growth strategy, and we expect to make additional acquisitions in the future. From January 1, 2011 to March 31, 2014, we acquired eight businesses for aggregate consideration of $640.2 million. As a consequence of the contributions of these businesses and acquisition related expenses, our consolidated results of operations may not be comparable between periods.

Our three most significant acquisitions since January 1, 2011 were:

 

Our acquisition of the Data Explorers Group on April 2, 2012, a leading provider of global securities lending data, which is reported within our Information segment and has been subsequently rebranded Markit Securities Finance (“Securities Finance”).

 

Our acquisition of Cadis Software Limited on June 1, 2012, a leading provider of global enterprise data management, which is reported within our Solutions segment and has been subsequently rebranded Markit Enterprise Data Management (“EDM”).

 

Our acquisition of thinkFolio Limited on January 13, 2014, a leading portfolio management software company, which is reported within our Solutions segment.

Acquisition of non-controlling interest

On April 2, 2013, we acquired the remaining interests in our subsidiary MarkitSERV, LLC, previously owned by the Depository Trust and Clearing Corporation, increasing our holding to 100%. As a result of this transaction, our results of operations are no longer reduced by non-controlling interest.

Public company expenses

We expect to incur additional operating expenses related to operating as a public company. This will include increased accounting and legal expenses, the cost of an investor relations function, expenses related to the Sarbanes-Oxley Act and increased director and officer insurance premiums. We do not expect these expenses to materially affect our overall profitability or to impede our growth prospects.

Share-based compensation

We operate a number of equity-settled, share-based compensation plans, under which we grant equity instruments (options and restricted shares) as consideration for services from our employees. The total amount to be expensed is determined by reference to the fair value of the options granted. The options granted vest upon the satisfaction of a service condition which, for the majority of awards, is satisfied over either three or five years. Restricted shares are granted to certain employees and become unrestricted typically over a period of three or five years. Most options granted prior to August 1, 2013 will vest in full upon the successful completion of this offering. In anticipation of this offering, an accelerated share based compensation charge of $4.9 million has been recognized as an exceptional item in the first quarter of 2014 with regard to these options.

On August 1, 2013, we granted options to purchase 2.6 million shares to certain key employees as part of an incentive based retention program. These options will vest upon the satisfaction of a service condition which will be satisfied over a five-year period after the successful completion of this offering. Annual compensation expense related to this grant, which does not begin to be recognized until after the completion of this offering becomes probable, is approximately $2.6 million.

In the first quarter of 2014, the successful completion of this offering was deemed probable, and as a consequence a total share based compensation charge of $1.9 million related to these options was

 

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recognized. This included an amount of $1.4 million which has been treated as an exceptional item and which relates to the acceleration of the amount which would have been recognized to this date, if the completion of this offering had been considered probable on the grant date.

In many of our locations globally, employer’s tax liabilities result from employees exercising share options. As a public company we anticipate that a greater number of employees may exercise options, increasing the level of tax which is payable by us, resulting in an increase in personnel costs. This is particularly relevant with regard to most options issued prior to August 1, 2013, which will vest in full upon the successful completion of this offering.

See Note 21 of the audited consolidated financial statements for a more detailed analysis of our share-based compensation plans.

Results of Operations

 

 

Description of key line items of the historical consolidated statements of income

Set forth below is a brief description of the composition of the key line items of our historical consolidated statements of income from continuing operations:

 

Revenue.  Represents the income recognized from our sale of pricing and reference data, indices, valuation and trading services, trade processing, enterprise software and managed services. We classify our revenue in three groups as follows:

 

  Recurring fixed revenue – Revenue generated from contracts specifying a fixed fee for services delivered over the life of the contract. The fixed fee is typically paid annually, semiannually or quarterly in advance. These contracts are typically subscription contracts where the revenue is recognized across the life of the contract. The initial term of these contracts can range from one to five years and usually includes auto-renewal clauses.

 

  Recurring variable revenue – Revenue derived from contracts that specify a fee for services which is typically not fixed. The variable fee is typically paid monthly in arrears. Recurring variable revenue is based on, among other factors, the number of trades processed, assets under management or the number of positions we value. Many of these contracts do not have a maturity date while the remainder have an initial term ranging from one to five years.

 

  Non-recurring revenue – Revenue that relates to certain software license sales and the associated consulting revenue.

 

Operating expenses.  Includes personnel costs, operating lease payments, technology costs, subcontractor and professional fees and other expenses. Personnel costs are our most significant cost and include salaries, bonuses and benefits.

 

Exceptional items.  Items of income and expenses that have been shown separately due to the significance of their nature, size or incidence of occurrence. Exceptional items include certain legal advisory costs, platform migration costs, IFRS conversion costs, impairments of intangible assets, fair value gains or losses on disposals, profit/(loss) on the sale of available for sale financial assets, indirect taxes, restructuring costs and other charges related to the offering.

 

Acquisition related items.  Primarily relates to legal and tax advisory costs attributable to acquisitions. In addition to these direct acquisition costs, we also include fair value adjustments to contingent consideration paid in relation to our completed acquisitions.

 

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Amortization – acquisition related.  Amortization of the intangible assets associated with our acquisitions is calculated using the straight-line method to allocate the difference between each asset’s cost and the residual value over the asset’s estimated useful life.

 

Depreciation and amortization - other.  Depreciation on tangible fixed assets and amortization of other intangible assets is calculated using the straight-line method to allocate the difference between each asset’s cost and the residual value over the asset’s estimated useful life.

 

Share-based compensation.  Relates to equity compensation arrangements for our employees under which we grant equity instruments as consideration for services.

 

Other gains/(losses) – net.  Principally includes the net profit and loss impact of adjustments to the fair value of unrealized forward foreign exchange contracts used to manage our foreign exchange risk and the non-cash impact of the retranslation of foreign exchange exposures on monetary balances.

 

Finance costs – net.  Interest and similar expenses relate to interest on borrowings and on finance lease liabilities, issue costs on borrowings, dividends on redeemable preference shares and the unwinding of discounts. Interest income relates to interest earned on short-term bank deposits.

 

Income tax expense.  Represents the aggregate amount included in the determination of profit for the period in respect of current tax and deferred tax, predominantly paid in the United Kingdom and the United States.

Results of operations for the three months ended March 31, 2013 and March 31, 2014

The following table summarizes our results of operations for the three months ended March 31, 2013 and 2014:

 

       For the three months ended March 31,  
($ in millions and as a % of revenue, unless noted)      2013        2014  

Revenue

       227.4           100.0        259.4           100.0

Operating expenses

       (125.1        55.0        (142.7        55.0

Exceptional items

       3.1           (1.4 )%         (11.1        4.3

Acquisition related items

       –                        (2.8        1.1

Amortization – acquisition related

       (12.5        5.5        (14.2        5.5

Depreciation and amortization – other

       (19.8        8.7        (23.3        9.0

Share-based compensation

       (1.9        0.8        (3.0        1.2

Other gains/(losses) – net

       12.9           (5.7 )%         (2.5        1.0

Operating profit

       84.1           37.0        59.8           23.1

Finance costs – net

       (5.0        2.2        (4.4        1.7

Profit before income tax

       79.1           34.8        55.4           21.4

Income tax expense

       (20.8        9.1        (15.6        6.0

Profit after income tax

       58.3           25.6        39.8           15.3

Other financial data:

                                           

Adjusted EBITDA

       90.8           –             116.7           –     

Adjusted EBITDA margin(1)

       44.7        –             45.0        –     

Adjusted Earnings

       47.5           –             72.9           –     

 

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(1) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

Revenue

Revenue increased by $32.0 million, or 14.1%, to $259.4 million for the three months ended March 31, 2014, from $227.4 million for the three months ended March 31, 2013. On a constant currency basis, our revenue growth was 11.2%, or $25.4 million.

Organic revenue growth accounted for $18.8 million, or 8.3% of the 14.1% increase. This was driven by an $11.3 million increase in revenue in our Solutions segment, primarily associated with our Enterprise Software sub-division which saw continued new business wins and further product and service developments. In addition, we saw continued growth in our Processing segment, which accounted for $4.9 million of the increase, primarily associated with our derivatives processing product due to higher levels of activity within the market.

Acquisitions contributed $6.6 million to revenue growth, or 2.9% of the 14.1% increase in revenue, primarily in relation to revenue from Markit Corporate Actions and thinkFolio Limited, which were acquired in July 2013 and January 2014, respectively.

We experienced a favorable movement in the pound sterling, period-over-period, which increased our revenue growth by $6.6 million, or 2.9% of the 14.1% increase in revenue.

Recurring fixed revenue as a percentage of total revenue increased from 50.5% for the three months ended March 31, 2013, to 51.7% for the three months ended March 31, 2014. Recurring fixed revenue increased from $114.9 million for the three months ended March 31, 2013 to $134.2 million for the three months ended March 31, 2014, as a result of new business wins in our Information and Solutions segments, and as a result of some customers moving from variable contracts to fixed term transactions in the Valuation and Trading Services sub-segment. Recurring variable revenue as a percentage of total revenue decreased from 45.4% for the three months ended March 31, 2013, to 43.3% for the three months ended March 31, 2014. Recurring variable revenue increased from $103.2 million for the three months ended March 31, 2013 to $112.2 million for the three months ended March 31, 2014, largely due to the previously mentioned growth of our derivatives processing product in the Processing segment, although this growth rate is not expected to continue throughout the year. We expect revenues within our Processing segment to be adversely impacted in future periods as a result of price erosion and decreased demand for certain of our processing products. See “Risk Factors—Risks Related to Our Business—Changes in legislation and regulation may decrease the demand for our products and services from our customers.” Non-recurring revenue as a percentage of total revenue increased from 4.1% for the three months ended March 31, 2013, to 5.0% for the three months ended March 31, 2014, principally due to new business wins in our Enterprise Software sub-division.

Operating expenses

Operating expenses increased by $17.6 million, or 14.1%, to $142.7 million for the three months ended March 31, 2014, from $125.1 million for the three months ended March 31, 2013. As a percentage of revenue, operating expenses remained constant at 55.0% in both periods.

Personnel costs contributed 60.8% and 61.0% of total operating expenses for the three months ended March 31, 2013 and 2014, respectively. Personnel costs increased by $11.0 million, or 14.5%, to $87.0 million for the three months ended March 31, 2014. This increase was driven by several factors, including the addition of employees due to acquisitions, continued investment in products to facilitate future growth, as well as increases in employee cash compensation levels. In 2013 we revised our discretionary compensation structure, which resulted in an increased cash award and a lower equity award, both in terms of annual pay increases and discretionary cash compensation.

Exceptional items

Exceptional items for the three months ended March 31, 2014 were a net expense of $11.1 million, and principally consisted of initial public offering preparation costs and accelerated IFRS 2 charges. The

 

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initial public offering preparation costs of $3.7 million consisted of legal and professional fees associated with this offering. Accelerated IFRS 2 charges of $6.3 million included the acceleration of the accounting charge for options which will vest upon the successful completion of this offering, as well as an accelerated charge related to options which will only commence vesting following a successful offering. In addition, we incurred legal advisory fees of $1.1 million related to ongoing antitrust investigations by the U.S. Department of Justice and the European Commission and the associated class action lawsuits.

Exceptional items were a net income of $3.1 million for the three months ended March 31, 2013. A $4.2 million profit on the sale of an investment was offset by legal advisory costs of $1.1 million related to the ongoing antitrust investigation by the U.S. Department of Justice and the European Commission.

Acquisition related items

Acquisition related items increased $2.8 million for the three months ended March 31, 2014 from $nil for the three months ended March 31, 2013. This included $1.0 million for legal and tax advisory costs on the acquisition of thinkFolio Limited. The thinkFolio acquisition included contingent consideration of $9.5 million, which is being accounted for as remuneration as it is contingent on the continued employment of key personnel within the business. Of that amount $1.8 million has been recognized as an acquisition related expense in the three months ended March 31, 2014.

Amortization – acquisition related

Acquisition related amortization increased by $1.7 million, or 13.6%, to $14.2 million for the three months ended March 31, 2014, reflecting the acquisition of thinkFolio Limited in the period and Markit Corporate Actions on July 2, 2013.

Depreciation and amortization – other

Depreciation and amortization – other increased by $3.5 million, or 17.7%, to $23.3 million for the three months ended March 31, 2014, principally due to a $2.3 million increase in the amortization of internally generated intangibles. This increase reflects the continued investment in developing and enhancing products and services.

Share-based compensation

Share-based compensation increased by $1.1 million, or 57.9%, to $3.0 million for the three months ended March 31, 2014, from $1.9 million for the three months ended March 31, 2013. The increase reflects an increase in the number of restricted shares granted as well as the commencement in the period of recognizing an expense associated with retention options granted in August 2013 which only commence vesting after the successful completion of this offering.

Other gains/(losses) – net

For the three months ended March 31, 2014, we had total net other losses of $2.5 million compared to total net other gains of $12.9 million for the three months ended March 31, 2013. The movement reflects, in part, net foreign exchange losses of $1.1 million recognized for the three months ended March 31, 2014, compared with net foreign exchange gains of $7.9 million recognized for the three months ended March 31, 2013, representing the non-cash impact of the retranslation of foreign exchange exposures on monetary balances.

A net loss on foreign exchange forward contracts of $1.4 million was recorded for the three months ended March 31, 2014, compared with a net gain of $5.0 million for the three months ended March 31, 2013.

Finance costs – net

Net finance costs decreased by $0.6 million, or 12.0%, to $4.4 million for the three months ended March 31, 2014, from $5.0 million for the three months ended March 31, 2013. The movement principally reflects a $1.0 million reduction in the unwind of discounts following payments to reduce both the share buyback and contingent consideration liabilities.

 

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Interest on bank borrowings increased $0.3 million, or 18.8%, to $1.9 million for the three months ended March 31, 2014 compared to the same period in the prior year, reflecting a higher level of average bank borrowings.

Income tax expense

Income tax expense was $15.6 million for the three months ended March 31, 2014, compared to $20.8 million for the three months ended March 31, 2013, a decrease of $5.2 million, or 25.0%. Our effective tax rate was 28.2% for the three months ended March 31, 2014, compared to 26.2% for the three months ended March 31, 2013, reflecting the impact of non-deductible exceptional expenses and the proportion of profits earned in higher tax jurisdictions.

Profit after income tax

Profit for the period was $39.8 million for the three months ended March 31, 2014, compared to $58.3 million for the three months ended March 31, 2013, a decrease of $18.5 million, or 31.7%, which principally reflects the exceptional charges and the impact of gains recognized on the retranslation of monetary items in the three months ended March 31, 2013.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $116.7 million for the three months ended March 31, 2014 increased by $25.9 million, or 28.5%, from $90.8 million for the three months ended March 31, 2013. This was due to increases in Adjusted EBITDA across all of our segments, but most notably within our Solutions segment, which increased by $6.1 million, attributable mainly to growth in our Enterprise Software sub-division and in our Processing segment, which increased by $4.5 million due largely to our derivatives processing product which saw higher levels of activity within the market compared to the prior year, although this growth rate is not expected to continue throughout the year. We expect revenues within our Processing segment to be adversely impacted in future periods as a result of price erosion and decreased demand for certain of our processing products. See “Risk Factors—Risks Related to Our Business—Changes in legislation and regulation may decrease the demand for our products and services from our customers.” The remainder of the increase in Adjusted EBITDA was largely attributable to an $11.5 million reduction in non-controlling interests following the acquisition of the remaining interests in our subsidiary MarkitSERV, LLC.

Adjusted EBITDA margin increased to 45.0% for the three months ended March 31, 2014 compared to the Adjusted EBITDA margin of 44.7% for the three months ended March 31, 2013. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted EBITDA to profit for the period from continuing operations.

Adjusted Earnings

Adjusted Earnings for the three months ended March 31, 2014 increased $25.4 million, or 53.5%, to $72.9 million from $47.5 million for the three months ended March 31, 2013. This reflects the improved operating performance discussed above. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted Earnings to profit for the period from continuing operations.

 

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Results of operations for the years ended December 31, 2012 and December 31, 2013

The following table summarizes our results of operations for the years ended December 31, 2012 and 2013:

 

       For the year ended December 31,  
($ in millions and as a % of revenue, unless noted)     

2012

       2013  

Revenue

       860.6           100.0 %          947.9           100.0

Operating expenses

       (454.0        52.8        (515.1        54.3

Exceptional items

       (40.3        4.7 %          (60.6        6.4

Acquisition related items

       (0.9        0.1        1.4           (0.1 )% 

Amortization – acquisition related

       (46.2        5.4        (50.1        5.3

Depreciation and amortization – other

       (66.7        7.8        (86.0        9.1

Share-based compensation

       (16.2        1.9        (8.1        0.9

Other gains/(losses) – net

       (11.6        1.3        0.7           (0.1 )% 

Operating profit

       224.7           26.1        230.1           24.3

Finance costs – net

       (28.9        3.4        (19.4        2.0

Profit before income tax

       195.8           22.8        210.7           22.2

Income tax expense

       (42.7        5.0        (63.7        6.7

Profit after income tax

       153.1           17.8        147.0           15.5

Other financial data:

                                           

Adjusted EBITDA

       358.2           –             421.3           –     

Adjusted EBITDA margin(1)

       47.0        –             45.6        –     

Adjusted Earnings

       218.4           –             248.4           –     

 

(1) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

Revenue

Revenue increased by $87.3 million, or 10.1%, to $947.9 million for the year ended December 31, 2013, from $860.6 million for the year ended December 31, 2012. On a constant currency basis, our revenue growth was 10.5%, or $90.7 million.

Organic revenue growth accounted for $52.1 million, or 6.1% of the 10.1% increase. This was driven by a $28.1 million increase in our Processing segment revenue, primarily associated with our loans processing product due to increased trading volumes across primary, secondary and buy-side trades, with each having different unit charges. In addition, we saw continued growth in our Information segment, which accounted for $18.6 million of the increase, primarily attributable to continued new business wins and new product and service developments.

Acquisitions contributed $38.6 million to revenue growth, or 4.4% of the 10.1% increase in revenue, primarily in relation to revenue from Securities Finance and EDM, which were acquired in April 2012 and July 2012, respectively.

We experienced an unfavorable movement in the pound sterling, period-over-period, which reduced our revenue growth by $3.4 million, or 0.4% of the 10.1% increase in revenue.

Recurring fixed revenue as a percentage of total revenue increased from 49.8% for the year ended December 31, 2012, to 50.6% for the year ended December 31, 2013. This increase was driven by revenue growth associated with the acquisitions of Securities Finance and EDM, both of which have predominantly fixed fee subscription-based revenue models, as well as new business within our

 

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Information segment and Managed Services sub-division. Recurring variable revenue as a percentage of total revenue increased from 44.8% for the year ended December 31, 2012, to 45.3% for the year ended December 31, 2013, principally due to the previously mentioned increase in our Processing segment revenue. Non-recurring revenue as a percentage of total revenue decreased from 5.4% for the year ended December 31, 2012, to 4.1% for the year ended December 31, 2013.

Operating expenses

Operating expenses increased by $61.1 million, or 13.5%, to $515.1 million for the year ended December 31, 2013, from $454.0 million for the year ended December 31, 2012. As a percentage of revenue, operating expenses increased from 52.8% to 54.3% over the same period.

Personnel costs contributed 59.9% and 59.7% of total operating expenses for the years ended December 31, 2012 and 2013, respectively. Personnel costs increased $35.2 million, or 12.9%, to $307.3 million for the year ended December 31, 2013. This increase was driven by several factors, including the addition of employees due to acquisitions, continued investment in products to facilitate future growth, as well as increases in employee cash compensation levels. In 2013 we revised our discretionary compensation structure, which resulted in an increased cash and lower equity award.

Exceptional items

Exceptional items for the year ended December 31, 2013 were a net expense of $60.6 million, and principally consisted of a $53.5 million impairment charge related to goodwill and acquired intangibles. The impairments are associated with the following cash generating units (“CGU”): full impairment of the assets of our Markit Hub CGU associated with the commercial outlook for this product, a partial impairment of our Markit on Demand (“MOD”) goodwill due to local cost pressures associated with operating at this asset’s location, reducing the anticipated rate of profit growth, and full impairment of the assets associated with BOAT following our decision to cease the operation of this product.

In addition, we incurred legal advisory fees of $6.3 million related to ongoing antitrust investigations by the U.S. Department of Justice and the European Commission and the associated class action lawsuits. A $5.0 million non-recurring charge associated with our review of our indirect tax compliance has been taken. These costs were partially offset by a $4.2 million profit on the sale of an investment.

Exceptional items totaled $40.3 million for the year ended December 31, 2012, and $21.4 million of this expenditure related to one-time costs incurred in migrating customers to a fully integrated platform for our loan settlement business. Legal advisory costs of $6.4 million for the year ended December 31, 2012 consisted of legal advisory fees associated with the ongoing antitrust investigation by the U.S. Department of Justice and the European Commission relating to credit derivatives and related markets. An $8.9 million goodwill impairment charge arose during the year ended December 31, 2012, which was largely offset by a reduction in contingent consideration associated with the same asset in acquisition related items.

Acquisition related items

Acquisition related items decreased by $2.3 million for the year ended December 31, 2013 from the year ended December 31, 2012, to a gain of $1.4 million. This included a gain of $1.8 million on the re-assessment of the fair value of contingent consideration on historic acquisitions. The cost of $0.9 million for the year ended December 31, 2012 related to the acquisitions of Securities Finance and EDM.

Amortization – acquisition related

Acquisition related amortization increased by $3.9 million, or 8.4%, to $50.1 million for the year ended December 31, 2013, reflecting the impact of a full period of amortization of intangible assets acquired through our Securities Finance and EDM acquisitions in April 2012 and June 2012, respectively.

 

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Depreciation and amortization – other

Depreciation and amortization – other increased by $19.3 million, or 28.9%, to $86.0 million for the year ended December 31, 2013, principally due to a $16.4 million increase in the amortization of internally generated intangibles. This increase reflects the continued investment in developing and enhancing products and services.

Share-based compensation

Share-based compensation decreased by $8.1 million, or 50.0%, to $8.1 million for the year ended December 31, 2013, from $16.2 million for the year ended December 31, 2012. The decrease reflects a revision, in 2012, of the estimated number of options and restricted shares expected to vest.

Other gains/(losses) – net

For the year ended December 31, 2013, we had total net other gains of $0.7 million compared to total net other losses of $11.6 million for the year ended December 31, 2012. The movement reflects, in part, net foreign exchange losses of $3.2 million recognized for the year ended December 31, 2013, compared with net foreign exchange losses of $10.1 million recognized for the year ended December 31, 2012, representing the non-cash impact of the retranslation of foreign exchange exposures on monetary balances.

A net gain on foreign exchange forward contracts of $3.9 million was recorded for the year ended December 31, 2013, compared with a net loss of $1.5 million for the year ended December 31, 2012.

Finance costs – net

Net finance costs decreased by $9.5 million, or 32.9%, to $19.4 million for the year ended December 31, 2013, from $28.9 million for the year ended December 31, 2012.

Interest on bank borrowings increased $1.4 million, or 27.5%, to $6.5 million for the year ended December 31, 2013, from $5.1 million for the year ended December 31, 2012, due to the higher average level of bank borrowings during the period.

Net finance costs for the year ended December 31, 2013 included a $3.1 million increase in the unwinding of discounts associated with the share buyback liability created following a share repurchase of $495.1 million in August 2012. See “—Liquidity and Capital Resources” for more detail regarding this transaction.

For the year ended December 31, 2012, net finance costs included $5.2 million of interest cost related to $210.0 million of convertible notes, which were converted in full to equity on June 30, 2012.

In the year ended December 31, 2012, we entered into two new debt facilities. In March 2012, we entered into a $350.0 million debt facility with HSBC Bank plc. This facility was subsequently repaid during 2012 and cancelled. In July 2012, we entered into a $800.0 million debt facility with Barclays Bank plc, HSBC Bank plc and The Royal Bank of Scotland plc. Issue costs of $8.2 million were incurred in relation to these agreements in the year ended December 31, 2012.

Income tax expense

Income tax expense was $63.7 million for the year ended December 31, 2013, compared to $42.7 million for the year ended December 31, 2012, an increase of $21.0 million, or 49.2%. Our effective tax rate was 30.2% for the year ended December 31, 2013, compared to 21.8% for the year ended December 31, 2012, reflecting the impact of non-deductible goodwill impairment costs and an increase in the proportion of profits earned in higher tax jurisdictions.

Profit after income tax

Profit for the period was $147.0 million for the year ended December 31, 2013, compared to $153.1 million for the year ended December 31, 2012, a decrease of $6.1 million, or 4.0%, which principally reflects the charge associated with our goodwill and acquired intangible asset impairments and an increased tax charge.

 

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Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA of $421.3 million for the year ended December 31, 2013 increased by $63.1 million, or 17.6%, from $358.2 million for the year ended December 31, 2012 due to increases in Adjusted EBITDA across all of our segments, but most notably within our Processing segment, which increased by $13.6 million attributable to increased volumes within our loans product, and within our Solutions segment, which increased by $9.9 million associated with continued growth of our Managed Services sub-division and the acquisition of EDM. The remainder of the increase in Adjusted EBITDA was largely attributable to a $36.9 million reduction in non-controlling interests following the acquisition of the remaining interests in our subsidiary MarkitSERV, LLC.

The reduction in our Adjusted EBITDA margin to 45.6% for the year ended December 31, 2013 from 47.0% for the year ended December 31, 2012 was attributable to the above performance drivers, including the structural change to our compensation program. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted EBITDA to profit for the period from continuing operations.

Adjusted Earnings

Adjusted Earnings for the year ended December 31, 2013, increased $30.0 million, or 13.7%, to $248.4 million from $218.4 million for the year ended December 31, 2012. This reflects the improved operating performance discussed above, partially offset by increased non-acquisition related intangible amortization, reflecting the continued investment in the development of new products and services and increased tax charges, reflecting the proportion of profits earned in higher tax jurisdictions. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted Earnings to profit for the period from continuing operations.

Results of operations for the years ended December 31, 2011 and December 31, 2012

The following table summarizes our results of operations for the years ended December 31, 2011 and 2012:

 

       For the year ended December 31,  
($ in millions and as a % of revenue unless noted)      2011        2012  

Revenue

       762.5           100.0        860.6         100.0%       

Operating expenses

       (403.0        52.9        (454.0      52.8%       

Exceptional items

       (11.6        1.5        (40.3      4.7%       

Acquisition related items

       (4.8        0.6        (0.9      0.1%       

Amortization – acquisition related

       (34.4        4.5        (46.2      5.4%       

Depreciation and amortization – other

       (62.7        8.2        (66.7      7.8%       

Share-based compensation

       (11.7        1.5        (16.2      1.9%       

Other losses – net

       (4.6        0.6        (11.6      1.3%       

Operating profit

       229.7           30.1        224.7         26.1%       

Finance costs – net

       (22.9        3.0        (28.9      3.4%       

Profit before income tax

       206.8           27.1        195.8         22.8%       

Income tax expense

       (50.6        6.6        (42.7      5.0%       

Profit after income tax

       156.2           20.5        153.1         17.8%       

Other financial data:

                                         

Adjusted EBITDA

       305.0           –               358.2         –               

Adjusted EBITDA margin(1)

       45.8        –               47.0      –               

Adjusted Earnings

       184.8           –               218.4         –               

 

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(1) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue, excluding revenue attributable to non-controlling interests.

Revenue

Revenue from continuing operations increased by $98.1 million, or 12.9%, to $860.6 million for the year ended December 31, 2012, from $762.5 million for the year ended December 31, 2011. On a constant currency basis, our revenue growth was 13.7%, or $104.4 million.

Organic revenue growth accounted for $45.0 million, or 5.9% of the 12.9% increase in revenue. This growth was attributed to an increase of $25.4 million in our Information segment due to continued new business wins and $12.5 million in our Processing segment, primarily associated with our loans processing product due to increased primary trade volumes and the introduction of buy-side trade fees.

Acquisitions contributed $59.4 million to revenue growth, or 7.8% of the 12.9% increase in revenue, of which $50.1 million was associated with the acquisitions of Securities Finance and EDM made in April 2012 and June 2012, respectively.

We also experienced unfavorable movements in both euro and pounds sterling, period-over-period, which reduced our revenue growth by $6.3 million, or (0.8)% of the 12.9% increase in revenue.

Recurring fixed revenue increased as a percentage of total revenue from 45.4% for the year ended December 31, 2011, to 49.8% for the year ended December 31, 2012. Recurring variable revenue decreased as a percentage of total revenue from 49.7% for the year ended December 31, 2011, to 44.8% for the year ended December 31, 2012. The change in the relative contribution of these two revenue classifications was driven by the revenue growth associated with the acquisitions of Securities Finance and EDM, both of which have predominantly subscription-based revenue models, as well as continued growth of our Information segment. Non-recurring revenue as a percentage of total revenue increased from 4.9% for the year ended December 31, 2011, to 5.4% for the year ended December 31, 2012, principally driven by consulting revenue from the acquisition of EDM.

Operating expenses

Operating expenses increased by $51.0 million, or 12.7%, to $454.0 million for the year ended December 31, 2012, from $403.0 million for the year ended December 31, 2011. The increase is primarily attributable to a $30.0 million increase in personnel costs. The increase in personnel costs was driven by $15.7 million associated with the addition of employees due to acquisitions, as well as an increase in hiring to support organic growth and increases in employee compensation levels.

Technology costs increased by $12.9 million, or 19.3%, which included costs associated with the acquisition of Securities Finance and EDM, as well as additional technology costs within our Processing segment to support the provision of enhanced services to customers in light of regulatory changes in the derivatives market.

Exceptional items

Exceptional items totaled $40.3 million for the year ended December 31, 2012, and $21.4 million of this expenditure related to one-time costs incurred in migrating customers to a fully integrated platform for our loan settlement business. Legal advisory costs of $6.4 million for the year ended December 31, 2012 consisted of legal advisory fees associated with the ongoing antitrust investigation by the U.S. Department of Justice and the European Commission relating to credit derivatives and related markets. An $8.9 million goodwill impairment charge arose during the year ended December 31, 2012, which was largely offset by a reduction in contingent consideration associated with the same asset in acquisition related items.

Exceptional items of $11.6 million for the year ended December 31, 2011 included $7.8 million of restructuring costs involving a rationalization of our premises and severance costs associated with a

 

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company-wide employee reduction program. Additionally, $6.1 million of legal advisory costs were incurred in relation to the antitrust investigations. Exceptional costs were partially offset by a gain on sale of assets of $2.3 million.

Acquisition related items

Total acquisition related items decreased by $3.9 million, or 81.3%, to $0.9 million for the year ended December 31, 2012, from $4.8 million for the year ended December 31, 2011. The decrease can be attributed to adjustments to the fair value of contingent consideration on historic acquisitions. This was partially offset by a $1.0 million, or 38.5%, increase in acquisition costs, which represent legal, tax and other advisory fees.

Amortization – acquisition related

Acquisition related amortization increased by $11.8 million, or 34.3%, to $46.2 million for the year ended December 31, 2012, representing the impact of the acquisitions of Securities Finance and EDM in April 2012 and June 2012, respectively.

Depreciation and amortization – other

Depreciation and amortization – other increased by $4.0 million, or 6.4%, to $66.7 million for the year ended December 31, 2012, reflecting our continued investment in developing and enhancing products and services.

Share-based compensation

Share-based compensation increased by $4.5 million, or 38.5%, to $16.2 million for the year ended December 31, 2012 due to the impact of a revision of the number of options and restricted shares expected to vest in 2012.

Other losses – net

For the year ended December 31, 2012, net other losses were $11.6 million, compared to net other losses of $4.6 million for the year ended December 31, 2011. The higher loss reflects, in part, a recorded net loss on foreign exchange forward contracts of $1.5 million for the year ended December 31, 2012, compared with a net gain of $1.0 million for the year ended December 31, 2011.

Other net foreign exchange losses of $10.1 million were recognized for the year ended December 31, 2012, representing the non-cash impact of the retranslation of foreign exchange exposures on monetary balances. For the year ended December 31, 2011, a net foreign exchange loss of $5.6 million was recognized.

Finance costs – net

Net finance costs increased by $6.0 million, or 26.2%, to $28.9 million for the year ended December 31, 2012, from $22.9 million for the year ended December 31, 2011. The increase in net finance costs was primarily driven by the increase in interest on bank borrowings, which reflects the higher level of average bank debt held during the year, due in particular to the acquisitions made in April 2012 and June 2012 for a combined $387.2 million in cash. In addition, $8.2 million of issue costs were incurred for the year ended December 31, 2012 related to two multi-currency credit facilities agreed in the year, one of which has subsequently been repaid and cancelled.

These increases were partially offset by a $5.3 million, or 50.5%, decrease in interest on convertible notes year-over-year. This follows the conversion, in full, of the outstanding $210.0 million convertible notes to equity on June 30, 2012.

Income tax expense

Income tax expense was $50.6 million for the year ended December 31, 2011, compared to $42.7 million for the year ended December 31, 2012, a decrease of $7.9 million, or 15.6%. Our effective tax

 

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rate was 21.8% for the year ended December 31, 2012, compared to 24.5% for the year ended December 31, 2011. The 2012 effective tax rate was lower due to U.K. profits being subject to a lower U.K. statutory tax rate, and increased permanent tax deductible expenditures recognized for the year ended December 31, 2012.

Profit after income tax

Profit for the period was $153.1 million for the year ended December 31, 2012, compared to $156.2 million for the year ended December 31, 2011, a decrease of $3.1 million, or 2.0%.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA was $358.2 million for the year ended December 31, 2012, compared to $305.0 million for the year ended December 31, 2011, an increase of $53.2 million, or 17.4%. Our Information segment contributed $40.0 million to the increase in Adjusted EBITDA, driven by the acquisition of Securities Finance and increased Adjusted EBITDA in our Valuation and Trading Services sub-division. Our Solutions segment also contributed $11.4 million of Adjusted EBITDA growth, primarily due to the acquisition of EDM and other growth within our Enterprise Software sub-division.

Adjusted EBITDA margin for the year ended December 31, 2012 was 47.0%, which increased from 45.8% for the year ended December 31, 2011. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted EBITDA to profit for the period from continuing operations.

Adjusted Earnings

Adjusted Earnings of $218.4 million for the year ended December 31, 2012 increased $33.6 million, or 18.2%, from $184.8 million for the year ended December 31, 2011. This reflects the improved operating performance discussed above partially offset by increased non-acquisition related intangible amortization, reflecting the continued investment in the development of new products and services. See “Selected Consolidated Historical and Pro Forma Financial Information” for a reconciliation of Adjusted Earnings to profit for the period from continuing operations.

Segmental Analysis

 

 

 

      

    For the year ended December 31,

       For the three months
ended March 31,
 
($ in millions)      2011        2012        2013        2013        2014  

Segmental data:

                                                      

Information

       373.4           431.3           459.6           111.6           117.7   

Processing

       227.3           238.8           265.3           65.2           72.2   

Solutions

       161.8           190.5           223.0           50.6           69.5   

Total revenue

       762.5           860.6           947.9           227.4           259.4   

Information

       174.5           214.5           217.2           51.4           55.2   

Processing

       128.8           124.5           138.1           34.7           39.2   

Solutions

       56.2           67.6           77.5           16.2           22.3   

Less non-controlling interests

       (54.5        (48.4        (11.5        (11.5        –     

Total Adjusted EBITDA

       305.0           358.2           421.3           90.8           116.7   

Information

       46.7        49.7        47.3        46.1        46.9

Processing

       56.7        52.1        52.1        53.2        54.3

Solutions

       34.7        35.5        34.8        32.0        32.1

Adjusted EBITDA

margin(1)

       45.8        47.0        45.6        44.7        45.0

 

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(1) Adjusted EBITDA margin is total Adjusted EBITDA divided by total revenue, excluding revenue attributable to non-controlling interests.

Segmental analysis for the three months ended March 31, 2013 and March 31, 2014

Information

Revenue in our Information segment increased by $6.1 million, or 5.5%, to $117.7 million for the three months ended March 31, 2014, compared to $111.6 million for the three months ended March 31, 2013. This was largely driven by new product development and new business wins within the Pricing and Reference Data sub-division.

Adjusted EBITDA in our Information segment increased by $3.8 million, or 7.4%, to $55.2 million for the three months ended March 31, 2014, compared to $51.4 million for the three months ended March 31, 2013. This increase was largely attributable to the revenue growth within our Pricing and Reference Data sub-division. Adjusted EBITDA margin was 46.9% for the three months ended March 31, 2014, compared to 46.1% for the three months ended March 31, 2013.

Processing

Revenue in our Processing segment increased by $7.0 million, or 10.7%, to $72.2 million for the three months ended March 31, 2014, from $65.2 million for the three months ended March 31, 2013. This revenue increase was the result of improved trading volumes in our derivatives processing product, associated with higher levels of activity within the market.

Adjusted EBITDA in our Processing segment increased by $4.5 million, or 13.0%, to $39.2 million for the three months ended March 31, 2014, from $34.7 million for the three months ended March 31, 2013. This increase was largely attributable to the performance of our derivatives processing product, which as highlighted above saw strong levels of revenue growth. Our Adjusted EBITDA margin increased to 54.3% for the three months ended March 31, 2014, compared to 53.2% for the three months ended March 31, 2013, primarily driven by operating leverage across both our derivatives processing and loans processing products.

Solutions

Revenue in our Solutions segment increased by $18.9 million, or 37.4%, to $69.5 million for the three months ended March 31, 2014, from $50.6 million for the three months ended March 31, 2013. This growth was largely attributable to strong levels of organic growth within our Enterprise Software and Managed Services sub-divisions, in addition to the acquisitions of Markit Corporate Actions and thinkFolio Limited.

Adjusted EBITDA in our Solutions segment increased by $6.1 million, or 37.7%, to $22.3 million for the three months ended March 31, 2014, from $16.2 million for the three months ended March 31, 2013. This increase was largely driven by the above-mentioned organic and acquired revenue growth across our Enterprise Software and Managed Services sub-divisions. Our Adjusted EBITDA margin increased to 32.1% for the three months ended March 31, 2014, from 32.0% for the three months ended March 31, 2013.

Segmental analysis for the years ended December 31, 2012 and December 31, 2013

Information

Revenue in our Information segment increased by $28.3 million, or 6.6%, to $459.6 million for the year ended December 31, 2013, compared to $431.3 million for the year ended December 31, 2012. The

 

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acquisition of Securities Finance accounted for a significant amount of the increase, with the remaining growth attributable to new product development and new business wins, mainly within our Pricing and Reference Data and Indices sub-divisions.

Adjusted EBITDA in our Information segment increased by $2.7 million, or 1.3%, to $217.2 million for the year ended December 31, 2013, compared to $214.5 million for the year ended December 31, 2012. This increase was attributable to the acquisition of Securities Finance and growth within our Pricing and Reference Data sub-division, offset by lower Adjusted EBITDA within our Services sub-division associated with investment in the development of new products. Adjusted EBITDA margin was 47.3% for the year ended December 31, 2013, compared to 49.7% for the year ended December 31, 2012.

Processing

Revenue in our Processing segment increased by $26.5 million, or 11.1%, to $265.3 million for the year ended December 31, 2013, from $238.8 million for the year ended December 31, 2012. Our revenue increase was the result of continued growth of our loans processing product, which benefited from high levels of primary loan issuances and trading volume in loan markets.

Adjusted EBITDA in our Processing segment increased by $13.6 million, or 10.9%, to $138.1 million for the year ended December 31, 2013, from $124.5 million for the year ended December 31, 2012. This increase was attributable to the performance of our loans processing product, which as highlighted above saw strong levels of revenue growth. This was partially offset by investment in our derivatives processing product associated with increased personnel costs as we continue to invest in product development opportunities created by the changing regulatory environment. Our Adjusted EBITDA margin remained consistent at 52.1% for the year ended December 31, 2013, compared to the year ended December 31, 2012.

Solutions

Revenue in our Solutions segment increased by $32.5 million, or 17.1%, to $223.0 million for the year ended December 31, 2013, from $190.5 million for the year ended December 31, 2012. This growth was largely attributable to the acquisition of EDM, as well as growth from new customer contracts within our Managed Services sub-division.

Adjusted EBITDA in our Solutions segment increased by $9.9 million, or 14.6%, to $77.5 million for the year ended December 31, 2013, from $67.6 million for the year ended December 31, 2012. This increase was driven by the acquisition of EDM, as well as growth within our Managed Services sub-division. Our Adjusted EBITDA margin reduced to 34.8% for the year ended December 31, 2013, from 35.5% for the year ended December 31, 2012, driven by lower non-recurring software license revenue in our Enterprise Software sub-division.

Segmental analysis for the years ended December 31, 2011 and December 31, 2012

Information

Revenue in our Information segment increased by $57.9 million, or 15.5%, to $431.3 million for the year ended December 31, 2012, compared to $373.4 million for the year ended December 31, 2011. The increase is primarily driven by acquisitions in the period, which contributed growth of $37.6 million. In addition to the acquisitions, the remainder of the growth was attributable to new business growth across each of our Pricing and Reference Data, Indices and Valuation and Trading Services sub-divisions.

Adjusted EBITDA in our Information segment increased by $40.0 million, or 22.9%, to $214.5 million for the year ended December 31, 2012, compared to $174.5 million for the year ended December 31, 2011. This increase reflects the impact of acquisitions in the period, as well as operating leverage

 

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within our Valuation and Trading Services sub-division as revenue increased. This combination resulted in Adjusted EBITDA margins increasing to 49.7% for the year ended December 31, 2012, from 46.7% for the year ended December 31, 2011.

Processing

Revenue in our Processing segment increased by $11.5 million, or 5.1%, to $238.8 million for the year ended December 31, 2012, from $227.3 million for the year ended December 31, 2011. Our loans processing product increased revenue during the year ended December 31, 2012, as the number of loan issuances increased and because of the introduction of buy-side fees. Revenue within our derivatives processing product was flat, as growth in interest rates, foreign exchange and equity derivatives was largely offset by lower trade volumes within the credit markets.

Adjusted EBITDA in our Processing segment decreased by $4.3 million, or 3.3%, to $124.5 million for the year ended December 31, 2012, from $128.8 million for the year ended December 31, 2011. Although our loans processing product saw an increase in Adjusted EBITDA during the year ended December 31, 2012, this increase was more than offset by a decrease in Adjusted EBITDA attributable to our derivatives processing product due to an increase in personnel costs resulting from investment in product development opportunities created by a changing regulatory landscape. As a consequence, Adjusted EBITDA margins declined from 56.7% for the year ended December 31, 2011, to 52.1% for the year ended December 31, 2012.

Solutions

Revenue in our Solutions segment increased by $28.7 million, or 17.7%, to $190.5 million for the year ended December 31, 2012, from $161.8 million for the year ended December 31, 2011. This increase was driven by the acquisition of EDM, as well as organic growth from our Enterprise Software sub-division due to new customers and the development of new products and services in response to regulatory change.

Adjusted EBITDA in our Solutions segment increased by $11.4 million, or 20.3%, to $67.6 million for the year ended December 31, 2012, from $56.2 million for the year ended December 31, 2011. This increase was driven by the acquisition of EDM and by the above mentioned organic growth within our Enterprise Software sub-division. Our Adjusted EBITDA margin increased to 35.5% for the year ended December 31, 2012, from 34.7% for the year ended December 31, 2011.

 

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Quarterly Financial Information

The table below presents summary financial data for our quarterly unaudited consolidated results of operations for each of the quarters in the fiscal years ended December 31, 2012 and 2013 and the three months ended March 31, 2014. In management’s opinion, the data has been prepared on the same basis as the audited consolidated financial statements included in this prospectus, and reflects all necessary adjustments for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

    March 31,     June 30,     September 30,     December 31,         March 31,     June 30,     September 30,     December 31,         March31,  
($ in millions)   2012         2013         2014  

Information

    97.3        108.5        111.4        114.1          111.6        115.6        115.5        116.9          117.7   

Processing

    58.9        60.0        57.8        62.1          65.2        70.9        64.2        65.0          72.2   

Solutions

    41.4        41.5        53.6        54.0          50.6        51.8        58.7        61.9          69.5   

Revenue

    197.6        210.0        222.8        230.2          227.4        238.3        238.4        243.8          259.4   

Operating expenses

    (108.0     (114.8     (113.6     (117.6       (125.1     (126.9     (127.7     (135.4       (142.7

Exceptional items

    (1.0     (2.1     (25.5     (11.7       3.1        (1.1     (14.3     (48.3       (11.1

Acquisition related

items

    (0.1     (3.5     –          2.7          –          (0.1     (0.1     1.6          (2.8

Amortization –

acquisition related

    (8.7     (11.7     (12.9     (12.9       (12.5     (11.9     (12.6     (13.1       (14.2

Depreciation and

amortization – other

    (15.2     (16.1     (17.0     (18.4       (19.8     (20.7     (21.9     (23.6       (23.3

Share-based

compensation

    (3.9     (3.9     (4.2     (4.2       (1.9     (2.0     (2.0     (2.2       (3.0

Other (losses) / gains –

net

    (5.2     2.1        (6.3     (2.2       12.9        (2.1     (6.3     (3.9       (2.5

Operating profit

    55.5        60.0        43.3        65.9          84.1        73.5        53.5        18.9          59.8   

Finance

costs – net

    (5.8     (6.6     (9.7     (6.8       (5.0     (5.3     (4.7     (4.4       (4.4

Profit before income tax

    49.7        53.4        33.6        59.1          79.1        68.2        48.8        14.5          55.4   

Income tax expense

    (11.3     (13.1     (8.3     (10.0       (20.8     (14.8     (16.5     (11.6       (15.6

Profit for the period from continuing operations

    38.4        40.3        25.3        49.1          58.3        53.4        32.3        2.9          39.8   

Owners of the parent

    30.8        33.1        19.7        41.4          50.7        53.4        32.3        2.9          39.8   

Non-controlling

interests

    7.6        7.2        5.6        7.7          7.6        –          –          –            –     
      38.4        40.3        25.3        49.1          58.3        53.4        32.3        2.9          39.8   

Adjusted EBITDA(1):

                                                                           

Information

    45.5        50.8        56.5        61.7          51.4        55.0        54.4        56.4          55.2   

Processing

    30.7        32.4        30.4        31.0          34.7        39.0        34.6        29.8          39.2   

Solutions

    13.4        12.0        22.3        19.9          16.2        17.4        21.7        22.2          22.3   

Non-controlling interest

    (12.7     (13.0     (11.9     (10.8       (11.5     –          –          –            –     
      76.9        82.2        97.3        101.8          90.8        111.4        110.7        108.4          116.7   

Adjusted Earnings(2)

    46.2        48.3        55.7        68.2          47.5        70.8        64.7        65.4          72.9   

 

(1) See “Selected Consolidated Historical and Pro Forma Financial Information” for a description of how we define Adjusted EBITDA, why we believe it is useful to investors and a reconciliation to profit for the period from continuing operations.

 

(2) See “Selected Consolidated Historical and Pro Forma Financial Information” for a description of how we define Adjusted Earnings, why we believe it is useful to investors and a reconciliation to profit for the period from continuing operations.

 

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Liquidity and Capital Resources

 

 

We believe that cash flow from operating activities, available cash and cash equivalents and our access to our revolving credit facility will be sufficient to fund our liquidity requirements for at least the next 12 months. At March 31, 2014, we had $750.0 million of total liquidity, comprising $38.0 million in cash and cash equivalents and $712.0 million of available borrowings under our multi-currency revolving credit facility. In addition, we have historically generated strong cash flows from operations.

As of March 31, 2014, cash and cash equivalents of $20.0 million and $12.6 million were held in the United Kingdom and United States, respectively. All material cash and cash equivalents are available for use in the United Kingdom if required and without ramification. All cash and cash equivalents are held with three independent financial institutions with a minimum credit rating of A as defined by the three main credit rating agencies. As of March 31, 2014, all cash and cash equivalents were held in accounts with banks such that the funds are immediately available or in fixed term deposits with a maximum maturity of three months.

In July 2012, we entered into a credit agreement under which we obtained an $800.0 million unsecured multi-currency revolving credit facility. At March 31, 2014, we were in material compliance with all covenants under the facility. See Note 25 to the audited consolidated financial statements included elsewhere in this prospectus for a summary of the material terms of our revolving credit facility.

In March 2014, we amended and restated our existing credit agreement. The amended and restated agreement provided a $1,050.0 million unsecured multi-currency revolving credit facility with accordion capacity to $1,450.0 million. The amended and restated facility is for a term of five years, through March 21, 2019, and carries interest at a margin of between 0.75% and 1.75% over LIBOR, or, for amounts drawn in euro, over EURIBOR, and a commitment fee of 35% of the margin on the undrawn balance.

In June 2012, $210.0 million of convertible notes issued in 2010 matured, and the entire balance of the loan was converted into equity.

In August 2012, we repurchased 2,193,948 shares for consideration of $495.1 million, payable in quarterly instalments through May 2017. Amounts outstanding under this arrangement carry no coupon but bear an accounting charge for the unwinding of discounts. For accounting purposes, the present value of this liability at December 31, 2013 amounted to $306.6 million. At March 31, 2014, the present value of this liability was $282.5 million.

We had total debt, excluding capital leases and certain other obligations, of $221.4 million, $653.7 million, $574.6 million and $620.6 million as of December 31, 2011, 2012 and 2013 and March 31, 2014, respectively. At March 31, 2014, our total debt principally included $338.0 million drawn under our long-term multi-currency revolving credit facility and $282.5 million related to our share repurchase in August 2012.

Cash flows

The following table summarizes our operating, investing and financing activities for the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2013 and 2014:

 

    

For the year ended December 31,

   

  For the three months
ended March 31,

 
($ in millions)    2011       2012      

2013  

   

2013  

   

2014  

 

Net cash provided by / (used) in:

                                        

Operating activities

     322.2        340.6        339.8        45.6       
41.4
  

Investing activities

     (137.8     (479.6     (170.6    
(34.1

    (119.9

Financing activities

     (163.3     99.4        (203.9     (47.7     41.2   

Net increase / (decrease) in cash and cash equivalents

     21.1        (39.6     (34.7     (36.2     (37.3

 

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Net cash generated by operating activities

Net cash provided by operating activities decreased by $4.2 million, to $41.4 million for the three months ended March 31, 2014, from $45.6 million for the three months ended March 31, 2013.

Cash generated for the three months ended March 31, 2014 reflected additional cash generated from operations during the period, offset by movements in working capital, principally reflecting increased bonus payments paid in the three months to March 31, 2014.

Net cash generated by operating activities decreased by $0.8 million, to $339.8 million for the year ended December 31, 2013, from $340.6 million for the year ended December 31, 2012.

Cash generated for the year ended December 31, 2013 reflected additional cash generated from operations during the period and a reduction in interest paid, offset by movements in working capital, reflecting business growth as well as an increase in income tax paid.

Net cash generated by operating activities increased by $18.4 million, to $340.6 million for the year ended December 31, 2012, from $322.2 million for the year ended December 31, 2011.

Cash generated for the year ended December 31, 2012 reflected additional cash generated from operations and positive net working capital movements. The working capital movement is principally related to an increase in liabilities, specifically related to a $21.4 million platform migration exceptional cost and growth in the deferred income liability due to the impact of acquisitions, in addition to the continued growth in the business. This was partially offset by an increase in interest paid, due predominantly to arrangement fees associated with two credit facilities, one of which was subsequently repaid and cancelled, and an increase in income tax paid reflecting the mitigation of tax liabilities in 2011 through the utilization of brought forward tax losses.

Net cash used in investing activities

Cash flows used in investing activities increased by $85.8 million to an outflow of $119.9 million for the three months ended March 31, 2014, from an outflow of $34.1 million for the three months ended March 31, 2013.

Cash flows used in investing activities for the three months ended March 31, 2014 primarily related to $85.9 million used primarily for the acquisition of thinkFolio Limited. We spent a further $34.1 million on capital expenditures, primarily relating to internal development costs.

Cash flows used in investing activities for the three months ended March 31, 2013 primarily related to capital expenditures of $39.4 million as we continued to invest in our business to drive growth. This was partially offset by the proceeds from the sale of an available for sale asset for $5.2 million.

The $5.3 million decrease in capital expenditures from the three months ended March 31, 2013 to the three months ended March 31, 2014 related to leasehold improvements and furniture, fittings, and equipment in the three months ended March 31, 2013 as we invested in new office space in London and Dallas.

Cash flows used in investing activities decreased by $309.0 million to an outflow of $170.6 million for the year ended December 31, 2013, from an outflow of $479.6 million for the year ended December 31, 2012.

Cash flows used in investing activities for the year ended December 31, 2013 primarily related to the payment of $33.1 million of contingent consideration in relation to historic acquisitions and capital expenditures of $130.5 million as we continued to invest in our business to drive growth. This was partially offset by $5.2 million of proceeds from the sale of an investment.

Cash flows used in investing activities for the year ended December 31, 2012 primarily related to $380.8 million used for acquisitions. Acquisitions for the period included our acquisitions of Securities Finance and EDM. Additionally, capital expenditures totaled $99.0 million during the period.

 

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The $31.5 million increase in capital expenditures from the year ended December 31, 2012 to the year ended December 31, 2013 related to product development costs and the impact of acquisitions. The increase also reflects further expenditure on computer equipment.

Cash flows used in investing activities increased by $341.8 million to an outflow of $479.6 million for the year ended December 31, 2012, from an outflow of $137.8 million for the year ended December 31, 2011. Cash flows used in investing activities for the year ended December 31, 2011 primarily related to $66.7 million used for acquisitions and $75.0 million for capital expenditures. This was partially offset by $3.8 million of proceeds from the disposal of fixed assets.

The $24.0 million increase in capital expenditures from the year ended December 31, 2011 to the year ended December 31, 2012 was primarily a result of growth in the business, and in particular investment in a number of new offices in the second half of the year.

Net cash provided by (used in) financing activities

Net cash provided by financing activities increased to an inflow of $41.2 million for the three months ended March 31, 2014, from an outflow of $47.7 million for the three months ended March 31, 2013.

Net cash provided by financing activities for the three months ended March 31, 2014 principally reflected $100.0 million of proceeds from bank borrowings used to finance investing activities partially offset by $30.0 million of repayments on our credit facility and $26.3 million related to transactions with shareholders.

Net cash used in financing activities for the three months ended March 31, 2013 reflected $26.0 million related to transactions with shareholders and $22.0 million of borrowing repayments.

Net cash provided by financing activities decreased to an outflow of $203.9 million for the year ended December 31, 2013, from an inflow of $99.4 million for the year ended December 31, 2012.

Net cash used in financing activities for the year ended December 31, 2013 reflected $281.3 million related to transactions with shareholders and $157.0 million of borrowing repayments, partially offset by $177.0 million of proceeds from bank borrowings used to finance investing activities and $57.4 million of proceeds from the issuance of ordinary shares. The proceeds from issuance of shares predominantly reflect the exercise price associated with options exercised by employees in connection with the investment by Temasek.

Net cash provided by financing activities for the year ended December 31, 2012 reflected $240.5 million of proceeds from bank borrowings used to finance investing activities and $43.1 million of proceeds from the issuance of ordinary shares, primarily from the exercise of options, partially offset by $158.7 million used for the repurchase of ordinary shares and the payment of $25.5 million of dividends to non-controlling interests.

Net cash provided by financing activities increased to an inflow of $99.4 million for the year ended December 31, 2012, from an outflow of $163.3 million for the year ended December 31, 2011.

Net cash used in financing activities for the year ended December 31, 2011 was due to $120.0 million used for repayment of bank borrowings, $31.8 million used for the repurchase of ordinary shares and the payment of $30.7 million of dividends to non-controlling interests.

 

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Contractual Obligations and Contingencies

 

 

Contractual obligations

The following table summarizes our estimated material contractual cash obligations and other commercial commitments at December 31, 2013, and the future periods in which such obligations are expected to be settled in cash:

 

                 Cash payments due by period  
($ in millions)      Total        Less than 1
year
       1-3 years        3-5 years        After 5 years  

Bank borrowings(1)

       282.2           4.0           8.0           270.2           –       

Other indebtedness(2)

       322.5           103.0           175.6           43.9           –       

Operating leases

       140.4           20.8           31.7           26.0           61.9   

Earn out and contingent consideration

       37.0           3.8           7.9           7.8           17.5   

Total

       782.1           131.6           223.2           347.9           79.4   

 

(1) Borrowings commitment includes estimates of future interest payable; the amount of interest payable will depend upon the timing of cash flows as well as fluctuations in the applicable interest rates. In respect of the interest presented in this table, we have assumed an interest rate of 1.49% as of December 31, 2013, which has been applied to the amount at that date. Of our estimated interest payments in respect of borrowings of $14.2 million, $4.0 million is payable in less than one year, $8.0 million is payable in one to three years and $2.2 million is payable in three to five years.

 

(2) As of March 31, 2014 other indebtedness reduced to $296.2 million following a repayment of $26.3 million.

 

(3) On March 21, 2014 we amended our existing credit agreement. If the amended credit facility had been in place at December 31, 2013, the assumed interest rate would have been 0.99%, and our estimated interest payable in less than one year would have been $2.7 million.

Off-balance sheet arrangements

We have no significant off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

 

 

In addition to the risks inherent in our operations, we are exposed to a variety of financial risks, such as market risk (including foreign currency exchange, cash flow and fair value interest rate risk), credit risk and liquidity risk, and further information can be found in Note 3 to the audited consolidated financial statements and Note 4 to the unaudited condensed consolidated interim financial statements included elsewhere in this prospectus.

Principal Accounting Policies, Critical Accounting Estimates and Key Judgments

 

 

The preparation of our financial information requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

 

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Our accounting policies which drive critical accounting estimates and involve key judgments include business combinations, valuation of contingent consideration, valuation of intangible assets on acquisition, goodwill impairment testing, internally developed intangibles, revenue recognition, valuation of the company’s shares and income taxes, and are discussed in further detail in Note 4 to the audited consolidated financial statements that appear elsewhere in this prospectus. For a summary of all of our significant accounting policies, see Note 2 to the audited consolidated financial statements and Note 3 to the unaudited condensed consolidated interim financial statements included elsewhere in this prospectus. New standards and interpretations not yet adopted are also disclosed in Note 2.25 to the audited consolidated financial statements included elsewhere in this prospectus.

JOBS Act

 

 

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, our common shares held by non-affiliates have a market value in excess of $700 million, or we issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens.

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. Our decision to opt out of the extended transition period is irrevocable.

 

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Business

Overview

 

 

Markit is a leading global diversified provider of financial information services. Our offerings enhance transparency, reduce risk and improve operational efficiency in the financial markets. Since we launched our business in 2003, we have become deeply embedded in the systems and workflows of many of our customers and continue to become increasingly important to our customers’ operations. We leverage leading technologies and our industry expertise to create innovative products and services across multiple asset classes. We provide pricing and reference data, indices, valuation and trading services, trade processing, enterprise software and managed services. Our end-users include front and back office professionals, such as traders, portfolio managers, risk managers, research professionals and other capital markets participants, as well as operations, compliance and enterprise data managers. We are highly responsive to evolving industry needs and work closely with market participants to develop new products and services.

We have over 3,000 institutional customers globally, including banks, hedge funds, asset managers, accounting firms, regulators, corporations, exchanges and central banks. As of December 31, 2013, we had 22 offices in 10 countries. For the year ended December 31, 2013, approximately 49.9% of our revenue came from customers in the United States, 40.3% from the European Union and 9.8% from other geographic areas, principally located in Asia Pacific. For the year ended December 31, 2013, we generated 50.6% of our revenue from recurring fixed fees and 45.3% from recurring variable fees. For the three months ended March 31, 2014, we generated 51.7% of our revenue from recurring fixed fees and 43.3% from recurring variable fees.

For the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, we generated revenue of $762.5 million, $860.6 million, $947.9 million and $259.4 million, respectively. We generated profit attributable to equity holders of $125.8 million, $125.0 million, $139.4 million and $39.8 million, and Adjusted EBITDA of $305.0 million, $358.2 million, $421.3 million and $116.7 million for the years ended December 31, 2011, 2012 and 2013 and the three months ended March 31, 2014, respectively. Our Adjusted EBITDA margin for the year ended December 31, 2013 was 45.6%, reflecting the operating leverage inherent in our business model and our culture of cost management.

Our business is organized in three divisions: Information, Processing and Solutions.

Information: Our Information division, which represented approximately 48.5% of our revenue in 2013, provides enriched content comprising pricing and reference data, indices and valuation and trading services across multiple asset classes and geographies through both direct and third-party distribution channels. Our Information division products and services are used for independent valuations, research, trading, and liquidity and risk assessments. These products and services help our customers price instruments, comply with relevant regulatory reporting and risk management requirements, and analyze financial markets. We conduct more than 150,000 independent valuations and price more than two million corporate, municipal and securitized bonds on a daily basis.

Processing: Our Processing division, which represented approximately 28.0% of our revenue in 2013, offers trade processing solutions globally for over-the-counter (“OTC”) derivatives, foreign exchange (“FX”) and syndicated loans. Our trade processing services enable buy-side and sell-side firms to confirm transactions rapidly, which increases efficiency by optimizing post-trade workflow, reducing risk, complying with reporting regulations and improving connectivity. We believe we are the largest provider of end-to-end multi-asset OTC derivatives trade processing services. On average, we process over 80,000 OTC derivatives trades daily, and we settle substantially all leveraged syndicated loans in the Loan Syndications and Trading Association (“LSTA”) and also support and settle loans trading in the Loan Market Association (“LMA”) market.

 

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Solutions: Our Solutions division, which represented approximately 23.5% of our revenue in 2013, provides configurable enterprise software platforms, managed services and hosted custom web solutions. Our offerings, which are targeted at a broad range of financial services industry participants, help our customers capture, organize, process, display and analyze information, manage risk and meet regulatory requirements. We manage documentation for over 60,000 unique entities, and our loans portfolio management platform is used to service over $850 billion of loans.

Our Competitive Strengths

 

 

We believe that our competitive strengths include the following:

Demonstrated Ability to Innovate and Develop New Products. We work closely with our customers to develop and introduce new offerings that are designed to enhance transparency, reduce risk and improve operational efficiency. In recent years, we have launched new products addressing a wide array of customer needs, such as managing credit exposure, meeting regulatory reporting requirements, increasing efficiency in trade confirmation, enhancing industry communication and improving bond market transparency. We offer a distribution model that enables our customers to receive our data either through our own proprietary distribution channels or through third-party applications. This flexible model allows customers to use our products efficiently.

Trusted Partner for Diversified, Global Customer Base and Strong Brand Recognition. We believe that our customers trust and rely on us for our consultative approach to product development, dedication to customer support and proven ability to execute and deliver effective solutions. Our industry expertise allows us to understand our customers’ needs, provide effective solutions and grow our product and service offerings. Our global footprint allows us to serve our customers throughout the world and to introduce our products and services to customers in new markets. The Markit brand is well established and recognized throughout the financial services community — many of the major financial market participants use our products and services. We also own a number of well-known index brands, including the Purchasing Managers Index (“PMI”) series, iBoxx, iTraxx and CDX.

Proven Ability to Acquire and Grow Complementary Businesses. We have a history of making targeted acquisitions that facilitate our growth by complementing our existing products and services and addressing market opportunities. We seek to acquire companies that allow us to consolidate existing businesses, diversify into related markets, and access technologies, products or expertise that enhance our product and service offerings. We have a proven track record of successfully integrating acquisitions into our business, including our global sales network, technology infrastructure and operational delivery model. With this strategy, we have driven strong growth in our acquired products, generating attractive returns on capital.

Attractive Financial Model. We believe we have an attractive financial model due to high recurring revenue, strong organic growth and high cash generation.

 

High Recurring Revenue: We offer our products and services primarily through recurring fixed fee and variable fee agreements. This business model has historically delivered stable revenue and predictable cash flows. For the year ended December 31, 2013, we generated 50.6% of our revenue from recurring fixed fees and 45.3% from recurring variable fees. For the three months ended March 31, 2014, we generated 51.7% of our revenue from recurring fixed fees and 43.3% from recurring variable fees. Many of the capabilities that we provide are core to our customers’ business operations, deeply embedded in their existing workflows and difficult to replace.

We calculate a renewal rate to assess how successful we have been in maintaining our existing business for products and services that fall due for renewal. This renewal rate compares the dollar value of renewals during the period to the total dollar value of all contracts that fall due for renewal during the period. This population of renewals is largely contracts that are recurring fixed fee in

 

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nature. The value of the contracts renewed includes situations where customers have renewed but downgraded the contract price, reduced the number of products and services they purchase from us and decided not to renew all products and services. It does not include the benefit of price increases on these existing products or services, or upgrades to existing contracted products or services. Using this definition, for the year ended December 31, 2013 and the three months ended March 31, 2014, our renewal rate of recurring fixed fee contracts was approximately 90%.

 

Strong Organic Growth: The breadth of our offerings in conjunction with our large, global customer base allows us to cross-sell our products and services. We have also developed new products and services and substantially expanded our customer base. We have a demonstrated ability to drive organic growth with average organic revenue growth of 5.4% over the past three years.

 

High Cash Generation: Our business has low capital requirements for product maintenance and development, allowing us to generate strong cash flow. Our infrastructure and technology platforms allow us to accommodate additional product and service volumes with limited incremental operating costs or capital expenditures, further increasing cash generation.

Experienced Management Team Incentivized by Ownership Culture. On average, our 35 most senior managers have worked in the financial industry for 22 years. This experience has provided our management team with a strong network of relationships and an extensive understanding of market participants within the financial services industry. We have attracted a highly-qualified and motivated employee base through significant employee ownership which creates a culture of innovation and an organization that quickly adapts to change. As of April 30, 2014, as adjusted for this offering, our management team and employees collectively held equity and options representing 32.3% of the company. Our management team is further supported by a Board of Directors that also has significant experience in the financial services industry.

Our Market Opportunity

 

 

The financial services industry has experienced significant change from regulatory and market forces over the last several years. We believe we are well-positioned to embrace these changes, which include:

Focus on Efficiency in the Financial Services Industry. Financial institutions are focused on rationalizing costs and increasingly view third-party products and services as effective means of achieving cost efficiencies. In addition, as financial institutions look to optimize vendor management, they are exhibiting a preference for companies with scale that offer a broad array of products and services. We believe our scale and broad portfolio of solutions position us well as customers seek to consolidate vendors. We also work actively with our customers to find opportunities to reduce their costs and improve services through industry solutions, most notably in managed services.

Changing Regulatory Landscape. New global regulations are driving higher capital requirements, enhanced risk management, and increased electronic trading and reporting and compliance requirements. In addition, regulations are driving market participants to gather more timely, relevant and complete data to improve transparency. With these new regulations and as regulatory authorities globally continue to establish stricter standards, we believe our customers will continue to strengthen their compliance capabilities, manage greater volumes of data and improve their risk management functions.

Evolving Technology and Communication Networks. Technology and information services are migrating toward cloud-based solutions and open architecture platforms. This trend creates challenges for securities firms and institutional investors, which have typically employed technology that is designed, built and administered in-house, a model that has limited flexibility and results in increased

 

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costs. In addition, instant messaging and social networks challenge the current closed, point-to-point communication networks used in financial services. These trends present an opportunity to create new services based on flexible technologies in a secure and compliant manner by moving away from high-cost, single-provider platforms.

Growth Shifting to Emerging Markets and Developing Economies. Emerging markets and developing economies are experiencing more rapid economic and population growth relative to developed economies in Western Europe and the United States. Emerging markets and developing economies are expected to account for 40.8% of nominal global gross domestic product by 2017 (up from 37.7% in 2012), according to the International Monetary Fund. As financial markets in emerging markets and developing economies continue to mature, we expect increased demand in these countries for our products and services.

Shifting Investment Styles. Investors are allocating increasing amounts of capital to passive investment products and are seeking exposure beyond equities to a wider range of asset classes, including bonds, loans and commodities. Passive investment products have proliferated due to investor demand for transparency, lower costs and greater liquidity, as evidenced by the net assets held by ETFs increasing at a compound annual growth rate of 29% from 2002 to 2012, according to the Investment Company Institute. Furthermore, the share of ETF assets in fixed income and commodities has increased from 10% in 2007 to 27% in 2012, demonstrating investor appetite for a wider range of asset classes. We believe these trends will persist, generating significant growth opportunities for our multi-asset class offerings.

Our Growth Strategies

 

 

Our strong historical results reflect successful execution of our strategy of driving organic growth, through development of new products and services and increased customer penetration, and making targeted acquisitions. We believe we are well-positioned for future growth and have a multi-faceted growth strategy that builds on our strong customer relationships, diversified product and service offerings and investments in people and technology. The key components of our strategy include:

Deliver Products and Services to Drive Customer Cost-Efficiency. The financial services industry’s regulatory and operating environment is putting pressure on our customers’ profits, driving them to rationalize costs and operate more efficiently. We believe there is a significant opportunity to reshape the cost structure of the industry by replacing services that have historically been duplicated across institutions. Our experience, reputation as a trusted partner and strong relationships with major financial institutions have allowed us to respond to customer needs for centralized services such as reference data management, customer on-boarding, global corporate actions and document management, which we believe will generate substantial cost savings for our customers. We believe we are in a strong position to remain a provider of choice for these services to our customers. For example, in September 2013, Markit and Genpact announced a partnership, working alongside some of the world’s largest banks, to centralize non-proprietary processes for on-boarding new customers and to manage other know-your-customer (“KYC”) requirements for the financial services industry.

Capitalize on Evolving Regulatory and Compliance Environment. Changing regulations are creating the need for new compliance and reporting processes, risk management protocols, disclosure requirements and analytics. We will continue to address these needs by providing auditable and compliant sources of risk and pricing data, multi-asset class global solutions, and integrated market and credit risk reporting. Our solutions are expected to support customers’ regulatory submissions, including stress testing and scenario analysis. In addition, we are re-positioning our trade processing business from a transaction-based confirmation service to a connectivity and regulatory reporting service; building out our KYC managed services capabilities; and enhancing our counterparty risk management and risk analytics offerings to meet the growing requirements of regulation and

 

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compliance. We expect our index business to benefit from the increased regulatory scrutiny imposed on administrators of benchmarks, which larger, well established providers such as ourselves are best positioned to address.

Introduce Innovative Offerings and Enhancements. To maintain and enhance our leadership position, we continuously strive to introduce enhancements to our existing products and services as well as new products and services. We maintain an active dialogue with our customers and partners to allow us to understand their needs and anticipate market developments. For example, in October 2013, after extensive customer consultations, we launched an open messaging network that we believe will enable professionals in all parts of the global financial services industry to communicate and share information seamlessly in a secure and compliant manner.

Increase in Geographic, Product and Customer Penetration. We believe there are significant opportunities to increase the number of users of our products and services at existing institutional customers, increase the number of locations where our products and services are used with existing customers and increase our cross-selling of products and services. We plan to add new customers by responding to the changing demands of the financial services community and by leveraging our brand strength, broad portfolio of solutions, global footprint and strong industry knowledge. We have developed significant penetration into large sell-side and buy-side firms in North America and Western Europe and have established a presence in select emerging markets and developing economies, and there is potential for further penetration and growth in emerging markets and developing economies, particularly in Asia. Reflecting our commitment to these markets, in May 2013 Singapore-based Temasek made a significant equity investment in our company, which has strengthened our links in Asia. We also recently relocated key management to Singapore to support our growing presence in the Asian markets.

Pursue Strategic Acquisitions. We selectively evaluate technologies and businesses that we believe have potential to enhance, complement or expand our product and service offerings and strengthen our value proposition to customers. We target acquisitions that can be efficiently integrated into our global sales network, technology infrastructure and operational delivery model to drive value. We believe we are an acquirer of choice among prospective acquisition targets due to our entrepreneurial culture, growth, global scale, strong brand and market position. We have acquired 26 businesses since our inception to March 31, 2014, with aggregate consideration of approximately $1.9 billion funded principally from operating cash flow.

Business Divisions

 

 

Information

Our Information division (2013 revenue of $459.6 million) provides enriched content comprising pricing and reference data, indices and valuation and trading services across multiple asset classes and geographies through both direct and third-party distribution channels. Our Information division products and services are used throughout the financial services industry for independent valuations, research, trading, and liquidity and risk assessments. These products and services help our customers to price instruments, comply with relevant regulatory reporting and risk management requirements, and analyze financial markets.

The Information division serves over 2,700 customers including buy-side firms (mutual funds, hedge funds, private equity funds, investment managers, insurance companies, pension funds, sovereign wealth funds and wealth managers), sell-side firms (investment banks, commercial banks, prime brokers, retail banks and custodian banks), exchanges, central banks, regulators, government agencies, rating agencies, research organizations, academics, accounting firms, consultancies, technology and service providers, and other corporations.

 

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The Information division comprises three sub-divisions:

 

Pricing and Reference Data: Our pricing and reference data sub-division provides our customers with independent pricing across major geographies and key asset classes as well as instrument, entity and reference data products. We price instruments spanning major asset classes, including fixed income, equities and credit. Our offering comprises several products that support the pricing and reference data needs of the credit derivative, bond and syndicated loan markets, most notably Reference Entity Database (“RED”) and Bond Reference Data. Customers use our pricing data primarily for independent valuations, risk analytics and pre-trade analytics and our reference data products in a broad range of valuation, trading and risk applications in both cash and derivative markets.

 

Indices: We own and administer indices covering loans, bonds, credit default swaps, structured finance and economic indicators, including the PMI series, iBoxx, iTraxx and CDX. In addition to our Markit index families, we provide a range of index related services to enable our customers to meet their custom index requirements. Our indices are used for benchmarking, risk management, valuation and trading. They also form the basis of a wide range of financial products, including exchange traded funds, index funds, structured products and derivatives.

 

Valuation and Trading Services: We provide a broad range of valuation and trading services to both derivative and cash market participants focused on instrument and portfolio valuations, trading performance and analysis, research aggregation and investment process workflow. For example, Totem provides model validation and pricing verification of complex derivatives for sell-side firms. Our portfolio valuation service provides independent valuations for a wide range of derivatives and cash products across all asset classes to buy-side firms.

For the years ended December 31, 2012 and 2013 and the three months ended March 31, 2014, our Information division generated revenue of $431.3 million, $459.6 million and $117.7 million, representing 50.1%, 48.5% and 45.4% of our total revenue, respectively, and Adjusted EBITDA of $214.5 million, $217.2 million and $55.2 million, representing 52.8%, 50.2% and 47.3% of our total Adjusted EBITDA before the removal of non-controlling interest, respectively.

Processing

Our Processing division (2013 revenue of $265.3 million) offers trade processing solutions globally for OTC derivatives, FX and syndicated loans, including infrastructure and pre-trade and post-trade support. The division enables buy-side and sell-side firms to confirm transactions rapidly, which increases efficiency by optimizing post-trade workflow, reducing risk, complying with reporting regulations and improving connectivity. Our Processing division sells products and offers services directly rather than via third parties, and its most significant offerings are MarkitSERV, our derivatives processing platform, and Markit Clear, our loans processing platform.

We believe our derivatives processing platform is the industry standard for OTC derivatives post-trade processing across credit, interest rates, equity and FX asset classes. The platform supports electronic confirmation, regulatory reporting, clearing connectivity and trade delivery from trade counterparties and inter-dealer brokers, exchanges and electronic trading platforms and swap execution facilities. Our derivatives processing platform has an active network of over 1,500 customers, including sell-side firms, buy-side firms and execution venues, with connectivity to 16 central counterparties. As part of the derivatives processing offering we launched Credit Centre to allow customers to achieve pre-trade clearing certainty and manage credit lines across multiple venues in an electronically traded marketplace. On an average day, our derivatives processing platform processes over 80,000 OTC trades.

 

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We believe our loans processing platform is the primary platform for the electronic confirmation, documentation and settlement of syndicated loans in the United States. It provides real time data on loan inventories as well as reconciliation and status reporting for new and historical trades. The platform connects sell-side and buy-side firms and loan agents in a single workflow. Functionality is currently being expanded to include loan custodians. We settle substantially all LSTA leveraged syndicated loans and also support and settle loans trading in the LMA market through our loans processing platform.

For the years ended December 31, 2012 and 2013 and the three months ended March 31, 2014, our Processing division generated revenue of $238.8 million, $265.3 million and $72.2 million, representing 27.8%, 28.0% and 27.8% of our total revenue, respectively, and Adjusted EBITDA of $124.5 million, $138.1 million and $39.2 million, representing 30.6%, 31.9% and 33.6% of our total Adjusted EBITDA before the removal of non-controlling interest, respectively.

Solutions

Our Solutions division (2013 revenue of $223.0 million) provides configurable enterprise software platforms, managed services and hosted custom web solutions. Our offerings help our customers capture, organize, process, display and analyze information, manage risk and meet regulatory requirements. As the financial services industry places a renewed emphasis on cost efficiency and operational risk reduction, institutions are likely to increase their use of outsourcing to industry experts, which should support demand for our Solutions offerings. Our products and services are designed to help our customers achieve material operational efficiency gains by using deep subject matter expertise, increasing automation and straight-through-processing rates, providing cost-effective hosting, institutionalizing regulatory compliance in our products and services and standardizing our customers’ business processes.

The division targets a broad customer base within the financial services industry including buy-side and sell-side firms, custodians, private equity firms, wealth management firms and retail brokerages. The division sells direct via in-house sales teams, cross-selling software and services when possible, with no third-party distribution agreements.

The Solutions division operates in two sub-divisions: enterprise software and managed services.

 

Enterprise Software: The primary products within the enterprise software sub-division include Enterprise Data Management (“EDM”), Analytics, Wall Street Office (“WSO”) – Software and Markit thinkFolio.

EDM software and services provide customers a central hub to manage the acquisition, validation, storage and distribution of data sets from multiple sources. EDM software, which is targeted at banks, regulators, data providers, asset managers, hedge funds and insurance companies, produces transparent and auditable views of positions, transactions, valuations, exposure and counterparties.

Analytics provides our customers with a range of enterprise risk management software solutions to enable customers to calculate risk measures while delivering exceptional computation speed and rapid time to market. We expect Analytics to benefit from regulations that introduce new risk measurement requirements and from the financial services industry’s greater adoption of risk management practices. The Analytics customer base focuses on leading banks and insurance companies globally.

WSO – Software provides loan portfolio management software to participants in the syndicated bank loan market, delivering a single platform for reporting, collateralized loan obligation compliance, integration, performance analysis and agent syndication across the complete trading lifecycle. WSO – Software targets buy-side loan investors, middle market lenders, fund administrators and underwriters of structured products (e.g., collateralized loan obligations).

 

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Markit thinkFolio is a sophisticated front office portfolio modelling and order management system. It manages all of the major asset classes (bonds, equities, property, commodities, cash and FX, as well as a host of derivatives within each of these classes). It also has accurate, fast and real time cash management and an integrated compliance engine.

 

Managed Services: Significant offerings within managed services include MOD, Counterparty Manager, WSO – Services, and Collaboration Services.

MOD designs, builds and hosts custom web solutions for customers in both the retail and institutional financial services markets. The introduction and rapid growth of new user interfaces (e.g., mobile) along with increased demand for online consumption is expected to support further demand for MOD’s services. MOD targets online retail brokerages, sell-side firms, information providers and media firms.

Counterparty Manager provides an online platform for buy-side firms to manage counterparty documentation as they open and maintain trading accounts with sell-side firms. The platform enables the collection and distribution of KYC documents and regulatory support for the Dodd–Frank Act, Foreign Account Tax Compliance Act and other needs. We believe this platform continues to be in high demand as regulators and tax authorities on a global basis increase their oversight of financial markets.

WSO – Services helps syndicated loan customers streamline their business by providing outsourced access to our portfolio of services for middle and back office loan operations.

Our recently launched Collaboration Services platform provides an open, cross-industry messaging network and directory for the global financial services industry. We believe this will enable professionals in all parts of the industry to communicate and share information seamlessly in a secure and compliant manner.

For the years ended December 31, 2012 and 2013 and the three months ended March 31, 2014, our Solutions division generated revenue of $190.5 million, $223.0 million and $69.5 million, representing 22.1%, 23.5% and 26.8% of our total revenue, respectively, and Adjusted EBITDA of $67.6 million, $77.5 million and $22.3 million, representing 16.6%,17.9% and 19.1% of our total Adjusted EBITDA before the removal of non-controlling interest, respectively.

Our History

 

 

Markit was founded in 2003 by a group of entrepreneurs with deep experience in the financial services industry with the goal of increasing transparency in the credit derivatives market, initially with a daily credit default swaps pricing product. After the successful launch of its first product, the company attracted investments from global financial institutions, private equity and other investment funds. Since its founding, Markit has grown through organic product and service development and targeted acquisitions.

Customers

 

 

We have a diverse customer base across buy-side and sell-side firms, including banks, asset managers, hedge funds, private equity and venture capital funds, fund administration firms and other organizations. Our customers also include exchanges, central banks, regulators, government agencies, rating agencies, research organizations, academics, accounting firms, consultancies,

 

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technology and service providers, and other corporations. We have over 3,000 corporate customers, including many of the largest companies in the financial services industry. In 2013, only one customer or group of affiliated customers represented more than 5% of our revenue, at 5.1%, and fewer than 20 customers or groups of affiliated customers generated more than $10 million in revenue.

Sales and Marketing

 

 

We have a dedicated global sales force, which in turn is supported by a global account management team as well as by specialists in all major product and service families. We annually develop sales, distribution and marketing strategies on a product-by-product and service-by-service basis. We leverage customer data, business and market intelligence and competitive profiling to retain customers and cross-sell products and services, while also working to promote unified brand recognition across all of our products and services.

Sources of Data

 

 

The data supporting our Information division products and services is sourced principally through three different kinds of arrangements. First, we gather data from some of our customers under agreements that also permit these customers to use the products and services created based on their data contribution. Second, we purchase or license data from market data providers under contracts that reflect prevailing market pricing for the data elements purchased. Third, we source data either from public sources, such as corporate actions or bond issuances, or through direct means, such as conducting surveys for economic data. Because of the efficiency of our data gathering methods, our costs to source data are limited.

Information Technology

 

 

Our information technology systems are fundamental to our success. They are used for the storage, processing, access and delivery of the data that forms the foundation of our business and the development and delivery of the products and services we provide to our customers. Much of the technology we use and provide to our customers is developed, maintained and supported in-house by a team of over 1,100 employees. We generally own or have secured ongoing rights to use for the purposes of our business all the customer-facing applications that are material to our operations. We support and implement a mix of technologies, focused on implementing the most efficient technology for any given business requirement or task.

Data Centers

We provide most of our corporate and customer-facing services through 11 core data centers that provide a geographically separated and resilient structure. These data centers are located in London, Amsterdam, Boulder (Colorado), Littleton (Colorado), Dallas (Texas), Atlanta (Georgia) and Carlstadt (New Jersey), and are strategically located and operated as close as possible to the business needs in each geographic region.

Disaster Recovery

We ensure that key assets, such as premises, systems, documents and services are available, robust and can be recovered and resumed within acceptable timeframes following an incident that impacts operations. We have a committed business continuity infrastructure that is directed by a steering

 

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group, which includes our global head of business continuity and information security, global head of group technology services and other key business heads. Each product and service has a business continuity plan that is tied into an overarching crisis management plan and an office business continuity plan. Our goal is to ensure that production infrastructure and staffing do not create the potential for single points of failure. Thus, all product and service data is backed up regularly, with weekly and monthly backups stored securely at a third-party off-site storage facility.

Security

We place a high level of importance on our data protection and information security systems and have a dedicated team of security specialists. Markit’s information security team manages a wide range of security controls aimed at allowing our workforce to operate in a secure, policy-compliant manner. These controls are designed to alert us to possible weaknesses and breaches. Markit’s information security team also provides guidance at the product development stage to ensure best practice and engages in regular penetration testing of our products and services to assess security.

Competitors

 

 

We believe the principal competitive factors in our business include the depth, breadth, timeliness and cost-effectiveness of our products and services; quality and relevance of our offerings; ease of use; our people; and customer support. The breadth of the products and services we offer and the markets we serve expose us to a broad range of competitors that include large information service providers, market data vendors, exchanges, inter-dealer brokers and transaction processing providers.

Our principal competitors for our Information division products and services are Bloomberg L.P., FactSet, Interactive Data Corporation and Thomson Reuters Inc. The principal competitors for our Processing division products and services are Bloomberg L.P., IntercontinentalExchange, Inc. and Traiana, Inc. Our Solutions division products and services compete with firms such as Deloitte, GoldenSource, IBM Algorithmics and Intralinks Holdings, Inc.

Intellectual Property

 

 

We rely on a combination of trademark, trade secret, patent, misappropriation and copyright laws, as well as contractual and technical measures, to protect our proprietary rights and intellectual property. We seek to control access to and distribution of our confidential and proprietary information and enter into non-disclosure agreements with our employees, consultants, customers and suppliers that provide that any confidential or proprietary information owned or developed by us or on our behalf be kept confidential and limited to internal use. In the normal course of business, we provide our proprietary data, software and methodologies and business processes to third parties through licensing or restricted use agreements. We have proprietary information, rights and know-how in our data, indices, software processes, methodologies and business processes. We also pursue the registration of certain of our trademarks and service marks for our relevant fields of services in the United States and other key jurisdictions. As of December 31, 2013, we have registered 30 U.S. trademarks, including “MARKIT,” “IBOXX,” “ITRAXX” and “CDX,” and have filed one trademark application with the U.S. Patent and Trademark Office. As of December 31, 2013, we have also registered over 200 trademarks, including “MARKIT,” “PMI,” “IBOXX,” “ITRAXX” and “CDX,” in various other jurisdictions throughout the world. In addition, we have registered domain names covering many of our marks, including www.markit.com.

 

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Employees

 

 

As of December 31, 2013, Markit had over 3,200 employees, with over 900 in Europe, including over 800 in the United Kingdom, over 1,400 in the United States and over 800 in other locations globally. None of our employees are represented by collective bargaining agreements.

Facilities

 

 

Markit is headquartered in London, United Kingdom and operates in over 20 offices around the globe. As of December 31, 2013, our principal offices consisted of the following properties:

 

Location

 

 

Square feet

 

      

Lease expiration date(1)

 

    

Use

 

London, United Kingdom

    105,000         December 2025      Office Space

New Delhi, India

    51,971         July 2021      Office Space
New York City, U.S.     41,743         August 2018      Office Space

Dallas, U.S.

    47,413         September 2029      Office Space

Boulder, U.S. (Central Ave.)

    59,620         December 2017      Office Space

Boulder, U.S. (Flatiron Pkwy)

    30,196         December 2027      Office Space

 

(1) Expiration dates include exclusive renewal options granted to Markit in existing leases.

We also lease offices in the following locations: Amsterdam; Calgary; Edinburgh; Frankfurt; Henley on Thames, U.K.; Hong Kong; Manchester; Naperville, Illinois; Singapore; Sydney; Tokyo; Toronto; Valley Cottage, New York; and Vancouver. Historically, we have sought to consolidate acquisitions into major locations, such as London and New York, whenever logistically and commercially reasonable; however, there have been instances where we have expanded our footprint into new locations post-acquisition.

We continue to invest in our current locations as necessary, and we believe that our properties, taken as a whole, are in good operating condition and are suitable and adequate for our current business operations, and that additional or alternative space will be available on commercially reasonable terms for future use and expansion.

Legal Proceedings

 

 

We are party to regulatory investigations and legal proceedings with respect to credit default swaps, as described below. With respect to these ongoing matters, we are currently unable to determine the ultimate resolution of, or provide a reasonable estimate of the range of possible loss attributable to, these matters, and therefore we cannot predict the impact they may have on our results of operations, financial position or cash flow. Although we believe we have strong defenses and we are defending these matters vigorously, we could in the future incur judgments or fines or enter into settlements of claims that could have a material adverse effect on our results of operations, financial position and cash flows.

In addition to the matters described below, in the ordinary course of our business, we are or may be from time to time involved in various legal proceedings and we may receive routine requests for information from governmental agencies in connection with their regulatory or investigatory authority. We review such proceedings and requests for information and take appropriate action as necessary. We do not believe, however, based on currently available information, that the results of any of these proceedings or requests for information will have a material adverse effect on our business or results of operations.

 

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European Commission Investigation

In April 2011, the Competition Directorate General of the European Commission (“EC”) opened an investigation of the credit default swaps business, with a primary focus on the activities of certain major international investment banks, including certain of the underwriters in this offering (the “Dealers”), the International Swaps and Derivatives Association (“ISDA”) and Markit. During the course of the EC’s investigation, Markit responded to the EC’s various requests for information and met in person with the EC.

On July 1, 2013, the EC issued a Statement of Objections to Markit, ISDA and the Dealers, alleging that between 2006 and 2009, the Dealers acted collectively to prevent potential competitors from offering exchange-traded credit default swaps to protect the Dealers’ business as intermediaries in OTC trading of credit default swaps. The EC further alleged that, at the direction of the Dealers, Markit and ISDA denied essential inputs to proposed exchange initiatives and that Markit and ISDA acted as Dealer-controlled associations of undertakings. If the EC ultimately finds that Markit has violated European Union competition laws on this basis and the EC imposes fines on the company, Markit’s liability could be capped at 10% of the sum of the annual total worldwide revenue of each of the relevant Dealers. Depending on the EC findings, it is also possible that the fine could be limited to an amount not greater than 10% of the annual worldwide revenue of Markit.

The EC may also seek to require Markit to change how it offers products or services, including changes to existing contractual relationships and changes to future licensing arrangements.

The Statement of Objections is a preliminary finding and does not determine the final outcome of the EC proceedings. Markit has the opportunity to respond to the EC’s preliminary findings both in writing and at an oral hearing, and Markit is defending itself vigorously.

Department of Justice Investigation

In May 2009, the Antitrust Division of the U.S. Department of Justice (the “DOJ”) commenced an investigation seeking information regarding actions in credit default swaps by Markit and other participants, including the Dealers. From September 2009 through August 2012, the parties to the DOJ investigation, including certain Dealers and Markit, produced documents in response to DOJ requests for information and participated in depositions conducted by the DOJ. The matter remains pending with the DOJ. Markit has been fully cooperative, and will continue to cooperate, with the DOJ in connection with its investigation.

Class Action Lawsuits

Since May 2013, Markit has been named as a defendant with the Dealers and ISDA in a number of putative class action lawsuits filed in U.S. courts and arising out of allegations of violations of federal and state antitrust laws in connection with credit default swaps. The named plaintiffs in each case include pension funds, investment management funds and other buy-side firms who conduct business activities involving credit default swaps. All cases were filed either in the U.S. District Courts for the Northern District of Illinois or the Southern District of New York. On October 16, 2013, the Judicial Panel on Multidistrict Litigation transferred all cases to the Southern District of New York and on December 13, 2013, the court consolidated all such cases for pre-trial purposes.

The primary allegations by plaintiffs are that the defendants conspired to prevent competitors from offering execution and clearing services for exchange-traded credit default swaps and that the defendants conspired to fix and maintain credit default swap bid/ask spreads in the OTC market above the spreads that would have been realized with the development of exchange trading of credit default swaps. The substance of plaintiffs’ request for relief seeks a permanent injunction foreclosing defendants from continuing their alleged anticompetitive actions and trebled damages in an unspecified amount, plus interest, attorneys’ fees and costs of suit.

 

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There can be no assurance as to the outcome of the EC investigation, the DOJ investigation, or the class action lawsuits, but they could have a material adverse effect on Markit’s business, financial condition and results of operations.

Bermuda Exchange Control

 

 

Under Bermuda law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.

We have been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows us to engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to U.S. residents who are holders of our common shares.

Under Bermuda law, “exempted” companies are companies formed for the purpose of conducting business outside Bermuda from a principal place of business in Bermuda. As an exempted company, we may not, without a license or consent granted by the Minister of Finance, participate in certain business transactions, including transactions involving Bermuda landholding rights and the carrying on of business of any kind for which we are not licensed in Bermuda.

Corporate Information

 

 

Markit Group Holdings Limited was formed on May 9, 2007 pursuant to the laws of England and Wales, as a successor company to Markit Group Limited. Markit Ltd. was incorporated pursuant to the laws of Bermuda on January 16, 2014 to become a holding company for Markit Group Holdings Limited. Pursuant to the terms of a corporate reorganization that will be completed prior to the closing of this offering, all of the interests in Markit Group Holdings Limited will ultimately be exchanged for newly issued common shares of Markit Ltd. and, as a result, Markit Group Holdings Limited will become a wholly-owned subsidiary of Markit Ltd.

Our principal executive offices are located at 4th Floor, Ropemaker Place, 25 Ropemaker Street, London, England EC2Y 9LY. Our telephone number at this address is +44 20 7260 2000. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. We maintain a website at www.markit.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

We maintain a registered office in Bermuda at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The telephone number of our registered office is +1 441 295 5950.

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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Management

Executive Officers and Directors

 

 

The following table sets forth information about our executive officers and directors. Unless otherwise indicated, the current business address for our executive officers and directors is Markit Ltd., c/o Markit Group Limited, 4th Floor, Ropemaker Place, 25 Ropemaker Street, London, England EC2Y 9LY.

 

Name    Age        Position

Executive Officers

Lance Uggla

     52         Chairman and Chief Executive Officer

Kevin Gould

     51         President

Jeff Gooch

     46         Chief Financial Officer

Adam Kansler

     44         Chief Administrative Officer

Shane Akeroyd

     49         Global Head of Sales

Stephen Wolff

     46         Head of Corporate Strategy

Non-Executive Directors

               

Zar Amrolia

     50         Director

Jill Denham

     53         Director

Dinyar Devitre

     67         Director

William E. Ford

     52         Director

Timothy Frost

     49         Director

Robert Kelly

     60         Director

Robert-Jan Markwick

     53         Director

James A. Rosenthal

     61         Director

Thomas Timothy Ryan, Jr.

     68         Director

Dr. Sung Cheng Chih

     52         Director

Anne Walker

     39         Director

Executive Officers

Lance Uggla is Chief Executive Officer and Chairman of the Board of Markit, responsible for leading the company’s strategic development and managing its day-to-day operations. Mr. Uggla is a founder of Markit and has been a director and chief executive of the business since its formation in 2003. Prior to this, Mr. Uggla was Global Head of Credit Trading and Head of Europe and Asia for TD Securities. Mr. Uggla started his career at Wood Gundy in Toronto and, following the acquisition by CIBC, was latterly Global Head of Fixed Income. Mr. Uggla holds a BBA from the Simon Fraser University and an MSc from the London School of Economics.

Kevin Gould is President of Markit and a co-founder of the company. Mr. Gould was appointed head of Markit Asia Pacific in July 2013 and leads strategy and operations across that region. Mr. Gould established Markit’s business in North America in 2005 and was a director of Markit from 2003 to January 2014. Prior to this, Mr. Gould was European and Asian Head of Credit Trading and Sales at TD Securities in London. Mr. Gould holds a BSc in Mechanical Engineering from Bristol University.

Jeff Gooch was appointed Chief Financial Officer of Markit in September 2013 and is Chairman of MarkitSERV. He was a board member of Markit from 2003 to 2005. Mr. Gooch joined Markit in 2007 to lead the company’s portfolio valuations and trade processing business. In 2009, Mr. Gooch was appointed Chief Executive Officer of MarkitSERV and held that role until September 2013. Prior to this,

 

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Mr. Gooch had a 10 year career at Morgan Stanley, most recently as Head of Fixed Income Operations. Mr. Gooch started his career at Ernst & Young. Mr. Gooch is a chartered accountant and holds an MA in Mathematics from Cambridge University.

Adam Kansler is Chief Administrative Officer of Markit and leads the company’s strategic alliances, corporate communications, legal, human resources, regulatory and government affairs and enterprise risk functions. In 2013, Mr. Kansler was appointed head of Markit’s North American offices and is the General Counsel of Markit. Prior to joining Markit in 2009, Mr. Kansler was a partner in the corporate department of Proskauer LLP where he represented Markit as its outside counsel from the time of its formation. Mr. Kansler holds a BA in Economics from Hobart College and a JD from Columbia University School of Law.

Shane Akeroyd is Global Head of Sales and Marketing and leads Markit’s sales strategy and implementation across all products and geographies. Prior to joining Markit in 2008, Mr. Akeroyd held a number of sales roles most recently as Global Head of Sales for RBC Capital Markets. Mr. Akeroyd holds a BSc (Hons) in Economics from University College London.

Stephen Wolff is Head of Corporate Strategy. Mr. Wolff joined Markit in February 2014 from Deutsche Bank where he was Head of Strategic Investments, managing a portfolio of principal investments, primarily focused on financial market infrastructure. Previous roles at Deutsche Bank included Head of Fixed Income e-commerce and in a prior period, interest rate and FX derivatives trading in both G7 and emerging markets. Between 1999 and 2004, Mr. Wolff worked for Razorfish, and then as managing director of a venture capital start up, Pogo Technology. Mr. Wolff holds a BA in Economics from Manchester University.

Non-Executive Directors

Zar Amrolia has been a director of Markit since October 2013. Mr. Amrolia is Managing Director, Co-head of Fixed Income & Currencies Trading at Deutsche Bank; he was previously Global Head of Foreign Exchange & Markets Electronic Trading at Deutsche Bank. Prior to that, Mr. Amrolia was a partner and co-head of Global Foreign Exchange at Goldman Sachs. Mr. Amrolia also worked at Deutsche Bank from 1995 to 2000 in various roles. Mr. Amrolia holds a BSc in Physics from Imperial College, London, an MSc in Engineering from Oxford University and a DPhil in Mathematics from Oxford University.

Jill Denham has been a director of Markit since December 2013. Ms. Denham is a director of the National Bank of Canada, Morneau Shepell Inc. and Penn West Petroleum Ltd. and is a former director of the Ontario Teachers’ Pension Plan Board, the Foundation Board of the Hospital for Sick Children and the Prostate Cancer Research Foundation. From 2001 to 2005, Ms. Denham was Vice Chair of CIBC Retail Markets. Ms. Denham joined Wood Gundy (subsequently acquired by CIBC) in 1983 and held a number of positions including President Merchant Banking, CIBC Wood Gundy Capital, Managing Director and Executive Vice-President, CIBC, Europe, and head of Commercial Banking and CIBC World Markets e- commerce. Ms. Denham holds an HBA from the University of Western Ontario School of Business Administration and an MBA from Harvard Business School.

Dinyar Devitre has been a director of Markit since November 2012. Mr. Devitre is a special advisor to General Atlantic LLC and a member of the board of directors of Altria Group, Inc., SABMiller plc and The Western Union Company, where he is also the chairman of the nominating and governance committee. Mr. Devitre serves on the board of the Brooklyn Academy of Music and is chairman of the board of Pratham USA. He was formerly a director of The Lincoln Center for the Performing Arts, Inc. From 2002 to 2008 Mr. Devitre was Senior Vice President and Chief Financial Officer of Altria Group, Inc. Prior to 2002, Mr. Devitre held a number of senior management positions with Altria and Philip Morris and was a director of Kraft Foods Inc. and of Emdeon Inc. Mr. Devitre holds a BA (Hons) Degree from St. Joseph’s College, Darjeeling and an MBA from the Indian Institute of Management in Ahmedabad.

 

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William E. Ford has been a director of Markit since January 2010. Mr. Ford is the Chief Executive Officer of General Atlantic LLC, which he joined in 1991, chair of the executive committee and a member of its investment and portfolio committees. Mr. Ford sits on the board of Tory Burch, Oak Hill Advisors and First Republic Bank, and is a trustee of The Rockefeller University, The Memorial Sloan Kettering Cancer Center and Lincoln Center. Mr. Ford sits on the advisory boards of the Stanford Graduate School of Business and Tsinghua University’s School of Economics and Management. Mr. Ford formerly served on the boards of a number of General Atlantic portfolio companies including NYSE Euronext, E*Trade, Priceline, NYMEX and Zagat Survey and was a trustee of Amherst College. Prior to General Atlantic, Mr. Ford worked at Morgan Stanley as an investment banker. Mr. Ford holds a BA in Economics from Amherst College and an MBA from the Stanford Graduate School of Business.

Timothy Frost has been a director of Markit since January 2010. He previously served as a director from 2003 to 2004. Mr. Frost is a director of Cairn Capital, a Governor of the London School of Economics and a member of the Court of Directors of The Bank of England, where he is also a member of the Bank’s audit and risk committee. Prior to Cairn Capital Mr. Frost worked at J.P. Morgan in a variety of roles, including Head of Credit Trading, Sales and Research. Mr. Frost began his career as an officer in the British Army and served in Germany and the Falkland Islands. Mr. Frost holds a BSc in Economics from the London School of Economics.

Robert Kelly has been a director of Markit since November 2012 and is lead director of the Board. Mr. Kelly is chancellor of Saint Mary’s University in Canada, chairperson of Canada Mortgage and Housing Corporation and chairman of Santander Asset Management. Mr. Kelly was most recently chairman and Chief Executive Officer of Bank of New York Mellon Corporation and Mellon Financial Corporation. Prior to that, Mr. Kelly was Chief Financial Officer of Wachovia Corporation and Vice Chairman of Toronto-Dominion Bank. Mr. Kelly holds a BCom from Saint Mary’s University, a CA & FCA from the Canadian Institute of Chartered Accountants, an MBA from the Cass Business School as well as honorary doctorates from City University and Saint Mary’s University.

Robert-Jan Markwick has been a director of Markit since September 2013. Mr. Markwick is an advisory director to Goldman Sachs, where he has worked since 1994, and a trustee for MediCinema, a nonprofit organization. Mr. Markwick was previously head of Goldman Sachs’ Principal Strategic Investments Group in Europe. He was a member of its Firmwide Commitments Committee from 2005 to 2010 and rejoined the Committee in 2012. Prior to Goldman Sachs, Mr. Markwick worked at Oppenheimer & Company and Foreign & Colonial. Mr. Markwick holds an MA from Downing College, Cambridge University and an MBA from the Manchester Business School.

James A. Rosenthal has been a director of Markit since September 2013. Mr. Rosenthal is the Chief Operating Officer of Morgan Stanley, Head of Corporate Strategy and a member of Morgan Stanley’s management and operating committees. Mr. Rosenthal currently serves as chair of SIFMA, as a trustee of Lincoln Center and as a member of the board of Student Achievement Partners. Prior to this, Mr. Rosenthal was Chief Operating Officer of Morgan Stanley Smith Barney and Head of Firmwide Technology and Operations for Morgan Stanley, which he joined in March 2008. Mr. Rosenthal served as Chief Financial Officer of Tishman Speyer from 2006 to 2008. Prior to that, Mr. Rosenthal was Head of Corporate Strategy and Corporate Development at Lehman Brothers and a member of its management committee. Mr. Rosenthal joined McKinsey & Company in 1986 and left in 1999 as a senior partner specializing in financial institutions. Mr. Rosenthal holds a BA from Yale and a JD from Harvard Law School.

Thomas Timothy Ryan, Jr. has been a director of Markit since September 2013. Mr. Ryan is the Global Head of Regulatory Strategy and Policy at JPMorgan Chase and was Vice Chairman, Financial Institutions and Governments from 1993 to 2008. Mr. Ryan was President and Chief Executive Officer of the Securities and Financial Markets Association from 2008 to 2013. Prior to JPMorgan, Mr. Ryan was the Director of the Office of Thrift Supervision, U.S. Department of the Treasury. Mr. Ryan is a former director of the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, Lloyds

 

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Banking Group, Power Corporation of Canada, Power Financial Corporation, and Great-West Lifeco Inc. From 1983 to 1990, Mr. Ryan was a partner of Reed, Smith, Shaw & McClay. Mr. Ryan served as a board member and chairman of the audit committee at Koram Bank in Seoul, Korea from 2000 to 2004. He served as an officer in the U.S. Army from 1967 to 1970. Mr. Ryan holds an AB from Villanova University and a JD from American University Law School.

Dr. Sung Cheng Chih has been a director of Markit since December 2013. Dr. Sung is an investment advisor to the finance ministries in Singapore and Norway, the Monetary Authority of Singapore and the Government of Singapore Investment Corporation (GIC). Dr. Sung serves on the boards and investment and risk committees of a number of financial and academic institutions including the Massachusetts Institute of Technology, the Singapore University of Technology and Design, the Risk Management Institute of the National University of Singapore, the NTUC Income Insurance Co-Operative and the Wealth Management Institute in Singapore. Prior to 2011, Dr. Sung was Managing Director and Chief Risk Officer for the GIC, which he joined in 1993, as well as chairman of the group risk committee and a member of the group executive committee. Dr. Sung holds a BSc and MSc in Applied Mathematics from the University of Waterloo and a PhD in Pure Mathematics from the University of Minnesota.

Anne Walker has been a director of Markit since February 2013. Ms. Walker is head of Global Corporate Strategy and Investor Relations for Bank of America and is responsible for strategic planning and investments in addition to managing relationships with investors, industry analysts and members of the investment community. Prior to this, Ms. Walker was head of the U.S. Equity Syndicate desk at Bank of America. Ms. Walker started her career with Merrill Lynch in 1996 in investment banking and joined Equity Capital Markets in 2001. Ms. Walker holds a BA from Harvard University and an MBA from Columbia Business School.

Board Composition and Election of Directors after this Offering

 

 

Our Board of Directors is composed of twelve members, six of whom qualify as “independent” under the listing standards of Nasdaq. Prior to the consummation of this offering, our Shareholders’ Agreement provided certain of our shareholders the right to each designate one individual to serve on our Board of Directors. See “Related Party Transactions – Existing Shareholders’ Agreement and Current Articles of Association.” Upon the commencement of trading of our common shares on Nasdaq, however, our Shareholders’ Agreement will be terminated and, upon consummation of this offering and our corporate reorganization, new bye-laws of Markit Ltd. will be put in place. Therefore our existing shareholders will no longer have a right to designate any individuals to serve on our Board of Directors. Our directors were elected as follows:

 

Ms. Walker and Mssrs. Markwick, Rosenthal, Ryan and Amrolia were elected as the designees nominated by a Bank Investor (defined below in “Related Party Transactions – Existing Shareholders’ Agreement and Current Articles of Association”) pursuant to the Shareholders’ Agreement;

 

Mr. Uggla was elected as the designee nominated by the Management Investors (defined below in “Related Party Transactions – Existing Shareholders’ Agreement and Current Articles of Association”) pursuant to the Shareholders’ Agreement;

 

Mr. Ford was elected as the designee nominated by General Atlantic pursuant to the Shareholders’ Agreement;

 

Dr. Sung Cheng Chih was elected as the designee nominated by Temasek pursuant to the Shareholders’ Agreement; and

 

Ms. Denham and Mssrs. Devitre, Frost and Kelly were elected by the Board of Directors.

 

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The Board of Directors has determined that the following directors qualify as “independent” under the listing standards of Nasdaq: Jill Denham, Dinyar Devitre, William E. Ford, Timothy Frost, Robert Kelly and Dr. Sung Cheng Chih. Each of our directors will continue to serve as director until the election and qualification of his successor, or until the earlier of his death, resignation or removal. Our directors do not have a mandatory retirement age requirement under our bye-laws.

Upon the consummation of this offering, our Board of Directors will be divided into three classes as described below. Pursuant to our bye-laws, our directors are appointed at the annual general meeting of shareholders for a period of three years, with each director serving until the third annual general meeting of shareholders following their election (except that the initial Class I and Class II directors will serve until the first annual general meeting and second annual general meeting of shareholders, respectively). Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual general meeting of shareholders in the year of such expiration.

Dinyar Devitre, Robert Kelly, Robert-Jan Markwick and Dr. Sung Cheng Chih will initially serve as Class I directors for a term expiring in 2015. Zar Amrolia, Timothy Frost, James A. Rosenthal and Anne Walker will initially serve as Class II directors for a term expiring in 2016. Lance Uggla, Jill Denham, William E. Ford and Thomas Timothy Ryan, Jr. will initially serve as Class III directors for a term expiring in 2017. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. Mr. Uggla serves as the Chairman of our Board of Directors. For additional information regarding our Board of Directors, see “Description of Share Capital—Election and Removal of Directors.”

CPPIB has indicated an interest in purchasing up to $450 million of our common shares at the initial public offering price. Although indications of interest are not binding agreements or commitments to purchase, if CPPIB purchases common shares in this offering, it will have the right to nominate, in consultation with our Nominating and Governance Committee, one director for appointment to our Board of Directors. We expect CPPIB’s nominee to join our Board of Directors after the completion of our initial public offering as an additional Class III director to fill a vacancy. This right will expire if CPPIB’s beneficial ownership of our common shares falls below 100% of the number of common shares, if any, CPPIB purchased in our initial public offering.

Committees of the Board of Directors

 

 

Audit and risk committee

Our audit and risk committee, which consists of Dinyar Devitre, Dr. Sung Cheng Chih and Timothy Frost, assists the Board of Directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. The Board of Directors has determined that each of Dinyar Devitre, Dr. Sung Cheng Chih and Timothy Frost satisfies the “independence” requirement of Rule 10A-3 under the Exchange Act and meets the financial literacy and sophistication requirements of the listing standards of Nasdaq. The Board of Directors has also determined that Dinyar Devitre qualifies as an “audit committee financial expert” as such term is defined in the rules of the SEC.

HR and compensation committee

Our human resources and compensation committee (the “Compensation Committee”) consists of Robert Kelly, James A. Rosenthal, William E. Ford and Jill Denham. The Compensation Committee’s

 

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duties include determining the compensation to our Chief Executive Officer and reviewing recommendations to our Board of Directors with respect to the compensation of our other executive officers and other key management personnel. The Compensation Committee is also responsible for approving, allocating and administering our share incentive plans, executive level contract provisions, executive level succession plans, CEO performance appraisal criteria and benchmarking compensation recommendations against generally accepted market total compensation levels for annual recommendation to our Board of Directors.

Nominating and governance committee

Our nominating and governance committee consists of Dinyar Devitre, Robert Kelly, Timothy Frost, Lance Uggla, Thomas Timothy Ryan, Jr. and Jill Denham. Our nominating and governance committee identifies, evaluates and selects, or makes recommendations to our Board of Directors regarding, nominees for election to our Board of Directors and its committees.

Corporate Governance Practices

 

 

Our common shares have been approved for listing on the Nasdaq Global Select Market, or Nasdaq. In order to list on Nasdaq, we are required to comply with certain of the Nasdaq Rules. As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of certain of the Nasdaq Rules. Our corporate governance practices differ in certain respects from those that U.S. companies must adopt in order to maintain a Nasdaq listing. A brief summary of those differences is provided as follows.

Independent Directors

Our Board of Directors is composed of twelve members, six of whom qualify as “independent” under the listing standards of Nasdaq.

The human resources and compensation committee and the nominating and governance committee of our board of directors are not comprised entirely of independent directors.

Proxies and Shareholder Voting

Our bye-laws do not require us to solicit proxies or provide proxies for all meetings of shareholders.

Our bye-laws do not require shareholder approval for the issuance of shares (i) in connection with the acquisition of stock or assets of another company; (ii) when it would result in a change of control; (iii) when a share option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which shares may be acquired by officers, directors, employees, or consultants; or (iv) in connection with a transaction (other than a public offering) involving the sale, issuance or potential issuance of shares at a price less than market value.

Other than the foregoing, there are no significant differences between the corporate governance practices of Markit Ltd. and those required of a U.S. domestic issuer under the Nasdaq Rules.

 

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Code of Conduct and Business Ethics

 

 

We have adopted a Code of Conduct and Business Ethics which covers a broad range of matters including the handling of conflicts of interest, compliance issues and other corporate policies such as insider trading and equal opportunity and non-discrimination standards.

Compensation of Executive Officers and Directors

 

 

The aggregate cash compensation, including benefits in kind, accrued or paid to our executive officers and directors with respect to the year ended December 31, 2013 for services in all capacities was $6,224,551. In addition, for the year ended December 31, 2013, we also granted 9,300,000 options to purchase common shares in the aggregate to our executive officers and directors, as set forth in the following table.

 

No. of share options   Exercise price per share   Expiration date

1,000,000

  $26.700   December 31, 2020

8,300,000

  $26.700   July 24, 2020

As of December 31, 2013, the amount we have set aside or accrued to provide pension, retirement or similar benefits to our executive officers and directors was $26,137.

On April 11, 2014, we granted an additional 149,800 options to purchase common shares in the aggregate to our independent directors. These options were granted at an exercise price of $26.700 per share and expire on December 31, 2014.

Employment Agreements

 

 

Certain of our executive officers have entered into employment agreements with the company, certain of which provide for benefits upon a termination of employment. None of our directors have entered into service agreements with the company.

Equity Incentive Plans

 

 

Prior to the completion of our corporate reorganization, all of our equity incentive plans are administered by our wholly owned subsidiary, Markit Group Holdings Limited. Following the completion of our corporate reorganization, all of our equity incentive plans will be administered by Markit Ltd. For purposes of this section, prior to the completion of our corporate reorganization, references to the “Board of Directors” refer to the board of directors of Markit Group Holdings Limited (or a duly authorized committee thereof). Following the completion of our corporate reorganization, references to the “Board of Directors” refer to the board of directors of Markit Ltd. (or a duly authorized committee thereof). Prior to the completion of our corporate reorganization, shares that are issued pursuant to an equity award granted under such plans are the ordinary shares of Markit Group Holdings Limited. Following the completion of our corporate reorganization, shares that are issued pursuant to an equity award granted under such plans will be the common shares of Markit Ltd.

Share Option Plans

Since 2004, as part of our equity compensation program, we have historically adopted a new share option plan each year under which the Board of Directors may grant options to purchase ordinary non-

 

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voting shares in the company to eligible participants. Our share option plans are intended to enable us to motivate eligible participants who are important to our success and growth and to create a long-term mutuality of interest between such participants and our shareholders through grants of options to purchase shares in the company. Although the specific terms of our share option plans may differ from year to year, the material terms of our share option plans are set forth below.

Any employee, director and consultant of the company or its affiliates is eligible to participate in our share option plans. The Board of Directors administers our share option plans and has absolute discretion to determine the award recipients under each plan, as well as the terms of each individual award, including the vesting schedule and exercise price of such award (which must be determined no later than the grant date). The Board of Directors may also at any time delete, amend or add to the provisions of our share option plans, provided that no deletion, amendment or addition may adversely affect existing rights of participants without prior approval. Under certain of our share option plans, the Board of Directors also has the authority to designate an award of share options to employees as incentive stock options. The exercise price of an incentive stock option will be no less than 100% of the grant date fair market value of a share (or 110% in the case of an incentive stock option granted to a 10% shareholder), as set by the Board of Directors in good faith based on reasonable valuation methods. As of April 30, 2014, there were 44,421,910 shares underlying outstanding share options, including incentive stock options, granted pursuant to our share option plans (excluding the KEIP options described below), at exercise prices ranging from $0.900 to $26.700.

Subject to the Board of Directors determining otherwise, on or before the grant of a share option, share options generally have a seven-year term from the commencement of vesting, with certain share options having a ten-year term. They vest in accordance with the vesting terms as provided in the applicable share option plan or share option grant, and vest over a three- or five-year vesting period. For example, if a share option has a five-year vesting period, upon each anniversary of the grant date, the share option would vest as to one-fifth of the shares underlying such option over a total period of five years. The Board of Directors may at any time in its absolute discretion determine to treat an otherwise unvested share option as having vested in full or in part and may extend the exercise period or lapse date of a share option, provided that such lapse date may not be extended past the original term of the share option.

Upon a termination of employment or provision of services to the company, unvested share options will generally lapse immediately and vested share options will generally lapse after the expiry of a specified exercise period. In certain circumstances, vested share options may also lapse immediately upon termination. In connection with certain corporate transactions (such as a listing of our common shares on Nasdaq), share options may become fully vested and exercisable for a specified exercise period and may lapse thereafter. Prior to this offering, the Board of Directors amended certain of our share option plans to provide that share options that become fully exercisable upon a listing event (which, for purposes of this offering, will be the date of this prospectus) remain fully vested and exercisable for the remainder of the original term of such share option.

Each of our share option plans may be terminated at any time by the Board of Directors or the company and will in any event terminate on the tenth anniversary of its commencement date. Termination will not affect the outstanding rights of participants.

Restricted Share Plan

Since 2006, under our restricted share plan, the Board of Directors has granted awards of restricted ordinary non-voting shares in the company to eligible participants. The material terms of our restricted share plan are set forth below.

Any senior employee (including a director) of the company or an affiliate of the company is eligible to participate in the restricted share plan. As of April 30, 2014, there are 1,398,970 outstanding restricted shares issued under our restricted share plan.

 

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Under our restricted share plan, shares are issued to participants and registered in their name. Each restricted share has a nominal value of $0.01 per share, which the participant must pay in respect of the aggregate number of shares underlying the restricted share award. Restricted shares held by participants are subject to a vesting period set out in the participant’s allotment letter. For example, if an award of restricted shares has a three-year vesting period, upon each anniversary of the grant date, one-third of the restricted shares would vest over a total period of three years. Upon a termination of employment, certain forfeiture provisions may apply to a participant’s vested and/or unvested restricted shares.

Key Employee Incentive Program

The Markit Key Employee Incentive Program (the “KEIP”) was approved by the Board of Directors and adopted by the company on July 25, 2013. Under the KEIP, the Board of Directors may grant options to purchase ordinary non-voting shares in the company (“KEIP options”) to any employee (including an executive director) of the company or its subsidiaries who is required to devote substantially the whole of his or her working time to his or her employment or office. As of April 30, 2014, there are 25,635,000 shares underlying outstanding KEIP options, at an exercise price of $26.700 per share.

The Board of Directors administers the KEIP and has absolute discretion to determine the award recipients and terms of each individual award of KEIP options, including the vesting schedule and exercise price of such award (which must be determined no later than the grant date). The Board of Directors may also at any time delete, amend or add to the provisions of the KEIP, provided that no deletion, amendment or addition may adversely affect in any material manner existing rights of participants without prior requisite approval.

To be eligible to receive a KEIP option, a participant must agree to an extension of the vesting period for a portion of his or her outstanding share options, which portion is equal to a specified percentage (ranging from 20% to 30%) of their KEIP option grant. Instead of becoming fully vested and exercisable for a specified exercise period upon the occurrence of a listing event, such portion of a participant’s outstanding share options would instead become fully vested and exercisable on the second anniversary of the listing date.

KEIP options vest and become exercisable in three equal tranches on the third, fourth and fifth anniversaries of certain listing events, including, but not limited to, a listing on the Nasdaq or NYSE. KEIP options have a seven-year term from the grant date. The Board of Directors may at any time in its sole discretion decide to accelerate the vesting of unvested KEIP options.

Upon a termination of employment, unvested KEIP options will generally lapse immediately and vested KEIP options will generally lapse after the expiry of a specified exercise period. In certain circumstances, vested KEIP options may also lapse immediately upon termination of employment. In connection with certain corporate transactions, KEIP options may become fully vested and exercisable for a specified exercise period.

The KEIP may be terminated at any time by the Board of Directors or the company and will in any event terminate on the tenth anniversary of its commencement date. Termination will not affect the outstanding rights of participants.

2014 Equity Plan

Following the completion of this offering, we do not intend to continue our historical practice of adopting a new share option plan each year or making annual awards under a restricted share plan. Instead, we intend to terminate the existing equity incentive plans as to new grants and adopt a new 2014 equity incentive award plan (the “2014 Equity Plan”) under which we would have the discretion to grant a

 

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broad range of equity-based awards to our employees (including our officers), consultants, and non-employee directors, as well as employees, consultants and non-employee directors of our subsidiaries, parent companies and certain affiliates. The following is a summary of the 2014 Equity Plan which is qualified in its entirety by reference to the complete text of the 2014 Equity Plan, a copy of which is included as an exhibit to the registration statement of which this prospectus forms a part.

Share Reserve

Under the 2014 Equity Plan, 6,220,000 of our common shares will be reserved for issuance pursuant to a variety of share-based compensation awards (“Awards”), including non-qualified share options, incentive share options (“ISOs”), share appreciation rights (“SARs”), restricted share awards, restricted share unit awards, deferred share awards, dividend equivalent awards, share payment awards and performance awards. The amount reserved for issuance under the 2014 Equity Plan includes (i) 1,686,000 common shares previously authorized but unissued under the KEIP, (ii) 626,760 common shares previously authorized but unissued under our 2013 and 2014 share option plans, and (iii) 21,510 common shares previously authorized but unissued under our 2014 restricted share plan, plus the number of authorized shares that are issued or used for reference purposes in respect of any awards made and outstanding under the KEIP, the 2013 and 2014 share option plans, and the 2013 and 2014 restricted share plans that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of common shares. The aggregate share reserve specified above will be increased on January 1st of each year commencing in 2015 and ending on (and including) January 1, 2024, in an amount equal to the lesser of: (x) 2.5% of the total number of our common shares issued and outstanding on a fully diluted basis as of December 31st of the immediately preceding calendar year and (y) such number of common shares determined by the Board of Directors. We intend to file with the SEC a registration statement on Form S-8 covering the common shares issuable under the 2014 Equity Plan on the date of this prospectus.

Administration

The human resources and compensation committee of the Board of Directors (or other committee as the Board of Directors may appoint) administers the 2014 Equity Plan unless the Board of Directors assumes authority for administration. For Awards made to non-employee directors, the nominating and corporate governance committee of the Board of Directors (or other committee as the Board of Directors may appoint) administers the 2014 Equity Plan unless the Board of Directors assumes authority for administration. Subject to the terms and conditions of the 2014 Equity Plan, the plan administrator has the authority to select the persons to whom Awards are to be made, determines the types of Awards to be granted, the number of Awards to be granted, the number of common shares to be subject to Awards and the terms and conditions of Awards, makes all other determinations under the 2014 Equity Plan and can take all other actions necessary or advisable for the administration of the 2014 Equity Plan.

Types of Awards

The following are the types of Awards that may be granted under the 2014 Equity Plan. Each Award is required to be evidenced by an Award agreement that sets forth the terms, conditions and limitations of such Award.

 

Share Options provide for the right to purchase our common shares at a specified exercise price (which cannot be less than 100% of the fair market value of a common share on the grant date or, in the case of ISOs granted to greater than ten-percent shareholders, 110% of the fair market value on the grant date). The maximum term of share options under the 2014 Equity Plan is ten years (or five years in the case of ISOs granted to greater than ten-percent shareholders). Unless otherwise determined by the plan administrator, share options that are vested and exercisable as of the date of an option holder’s termination of employment, consultancy or directorship (as applicable) will remain exercisable for the following periods following the date of termination (but in no event

 

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  beyond the expiration of the stated term of the share option): if such termination is due to the participant’s death or “disability” (as defined in the 2014 Equity Plan), one year; or if such termination is by us without “cause” (as defined in the 2014 Equity Plan), or if such termination is a voluntary resignation, 90 days. Upon an employment termination by us for cause or a voluntary resignation following an event that would be grounds for termination for cause, the share options (whether vested or not) will terminate and expire on the date of termination.

 

Share Appreciation Rights, or SARs, entitle the holder to receive an amount, with respect to each SAR, equal to the difference between the exercise price of the SAR (which cannot be less than 100% of the fair market value of a common share on the grant date) and the fair market value of a common share on the date of exercise. The maximum term of SARs under the 2014 Equity Plan is ten years. SARs may be settled in cash or common shares, or in a combination of both, as determined by the plan administrator.

 

Restricted Shares are common shares made subject to such restrictions and vesting requirements as may be determined by the plan administrator. Unless otherwise determined by the plan administrator, restricted shares are forfeited or repurchased, as applicable, if the conditions or restrictions on vesting are not met. Unless otherwise provided for by the plan administrator, holders of restricted shares have all rights of a shareholder with respect to the shares subject to the restrictions set forth in the applicable award agreement, including the right to receive dividends and other distributions, if any, made prior to the time when the restrictions lapse.

 

Restricted Share Units are units representing the right to receive common shares, subject to vesting conditions based on continued service, performance criteria or other criteria as may be established by the plan administrator. Holders of restricted share units generally have no voting or dividend rights prior to the time when the underlying common shares are transferred to the holder.

 

Deferred Shares represent the right to receive common shares on a future date. Unless otherwise provided by the plan administrator, holders of deferred shares have no rights as a shareholder prior to the time when the common shares are issued. Deferred shares generally will be forfeited, and the common shares of deferred shares will not be issued, if the applicable conditions or other restrictions on the deferred shares are not met.

 

Dividend Equivalents represent the value of the dividends, if any, declared on our common shares and paid by us, calculated with reference to the number of common shares covered by the Award. Dividend equivalents may be settled in cash or common shares and at such times as determined by the plan administrator.

 

Share Payments are payments made in the form of common shares or an option or other right to purchase common shares. Share payments may be made as part of a bonus, deferred compensation or other arrangement and may be subject to a vesting schedule, including vesting upon the attainment of performance criteria or any other specific criteria determined by the plan administrator. Share payments may be made in addition to, or in lieu of, cash compensation that would otherwise be payable to the holder. Unless otherwise determined by the plan administrator, holders of share payments have no rights as a shareholder prior to the time when the common shares are issued.

 

Performance Awards are cash bonus, share bonus, performance or other incentive awards which may be linked to performance criteria determined by the plan administrator. Performance shares may be paid in cash, common shares or a combination of both.

Change in Control

Unless otherwise provided in an award agreement, in the event of a change of control of the company, outstanding Awards will continue in effect or be assumed by the successor corporation (or a parent or subsidiary of the successor corporation). In the event that the successor corporation refuses to assume

 

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such Awards, the plan administrator may cause all such Awards to be fully exercisable immediately prior to the change in control and cause all forfeiture restrictions on such Awards to lapse.

Under the 2014 Equity Plan, a “change in control” is generally defined as:

 

a transaction or series of transactions (other than a public share offering) whereby any individual, entity or group directly or indirectly acquires beneficial ownership of securities of the company possessing more than 50% of the combined voting power of the company’s issued and outstanding securities;

 

during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the company (together with any new directors whose election or nomination was approved by at least two-thirds of the Directors then in office who either were Directors at the beginning of the two-year period or whose election or nomination was previously so approved) cease for any reason to constitute a majority of the Board of Directors;

 

under certain circumstances set forth in the 2014 Equity Plan, the consummation by the company of a merger, amalgamation, consolidation, reorganization, or business combination, or a sale or disposition of all or substantially all of the company’s assets, or the acquisition of stock or assets of another entity if, after the transaction, an individual or group generally acquires 50% more of the combined voting power of the company or a successor; or

 

the company’s shareholders’ approval of a liquidation or dissolution of the company.

Adjustments of Awards

In the event of any share dividend, bonus issuance, share split, share consolidation or exchange of shares, merger, amalgamation, consolidation, reorganization or other distribution (other than normal cash dividends) of company assets to shareholders, or any other change affecting the shares in the company’s share capital or the price of the company’s shares, (i) the plan administrator may make (and in certain circumstances shall make) equitable adjustments, as determined in its discretion, to the aggregate number and type of shares subject to the 2014 Equity Plan, the number and kind of shares subject to outstanding Awards, the terms and conditions of outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect to such Awards), and the grant or exercise price per share of any outstanding Awards under the 2014 Equity Plan, and (ii) in connection with certain transactions or events or changes in law, the plan administrator is authorized to take certain actions (such as terminating an award in exchange for cash, requiring the assumption of Awards or requiring that the Award cannot vest, be exercised or become payable after the event) to facilitate the transaction or event or to give effect to the changes in law.

Amendment and Termination

The Board of Directors or the committees administering the 2014 Equity Plan may terminate, amend, modify or suspend the 2014 Equity Plan, in whole or in part, at any time and from time to time. However, no amendment, suspension or termination of the 2014 Equity Plan shall, without the consent of the affected Award holder, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No action by the Board of Directors or the committees administering the 2014 Equity Plan (other than adjustments described in the section titled “— 2014 Equity Plan — Adjustments of Awards” above) may increase the limits on the maximum number of shares which may be issued under the 2014 Equity Plan unless shareholder approval is obtained within twelve months before or after such action.

Non-Transferability of Awards

Except as the plan administrator may permit, at the time of grant or thereafter, Awards granted under the 2014 Equity Plan are generally not transferable by a holder other than by will or the laws of descent and distribution. Awards that are acquired by a permissible transferee will continue to be subject to the terms of the 2014 Equity Plan and the applicable Award agreement.

 

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Employee Benefit Trust

 

 

The EBT was established by a deed dated January 27, 2010 between Markit Group Holdings Limited and Ogier Employee Benefit Trustee Limited (the “Trustee”). The Trustee is an independent provider of fiduciary services, based in Jersey, Channel Islands. The EBT will terminate on January 27, 2090, unless terminated earlier by the Trustee.

The EBT is a discretionary trust through which Markit wishes to provide benefits to its existing and former employees. No such employee has the right to receive any benefit from the EBT unless and until the Trustee exercises its discretion to confer a benefit. Neither Markit nor any of its subsidiaries is permitted to be a beneficiary of the EBT.

Markit may make non-binding recommendations to the Trustee regarding the EBT. The Trustee may amend the EBT, subject to Markit’s consent, but not in any manner that would confer on Markit any benefit or possibility of benefit.

The principal activity of the EBT has been to acquire shares in Markit from its existing and former employees and to hold such shares for their benefit. Subject to the exercise of the Trustee’s discretion, such shares may be delivered to such employees in satisfaction of their rights under any share incentive arrangements established by Markit. The Trustee may not vote any of the shares held by the EBT unless Markit directs otherwise. The Trustee is also generally obliged to forgo dividends in respect of each share held by the EBT unless Markit directs otherwise.

Markit has funded the EBT’s acquisition of shares through interest-free loans that are repayable on demand, but without recourse to any assets other than those held by the Trustee in its capacity as trustee of the EBT.

 

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Principal and Selling Shareholders

The following table and accompanying footnotes sets forth information relating to the beneficial ownership of our common shares, as of April 30, 2014, and after giving effect to our corporate reorganization, by:

 

each person, or group of affiliated persons, known by us to beneficially own 5% or more of our issued and outstanding common shares;

 

each of our directors;

 

each of our executive officers;

 

all directors and executive officers as a group; and

 

all selling shareholders.

The number of common shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of April 30, 2014 through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all common shares held by that person.

The percentage of common shares beneficially owned before this offering is computed on the basis of 202,319,190 common shares issued and outstanding as of April 30, 2014, after giving effect to our corporate reorganization, but without giving effect to the exercise of options to acquire 1,759,520 common shares in connection with this offering. The percentage of common shares beneficially owned after this offering is based on 204,078,710 common shares that will be issued and outstanding upon the completion of this offering (including 1,759,520 common shares issued upon the exercise of options in connection with this offering). Solely for purposes of the following table and accompanying footnotes relating to beneficial ownership of our common shares, the number of common shares issued and outstanding as of April 30, 2014 and upon the completion of this offering includes 25,210,690 common shares held by the EBT. See “Management—Employee Benefit Trust” and footnote (7) accompanying the table below.

Common shares that a person has the right to acquire within 60 days of April 30, 2014 are deemed issued and outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed issued and outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed is Markit Ltd., c/o Markit Group Limited, 4th Floor, Ropemaker Place, 25 Ropemaker Street, London, England EC2Y 9LY.

CPPIB has indicated an interest in purchasing up to $450 million of our common shares at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to CPPIB, and CPPIB could determine to purchase more, less or no shares in this offering. The information set forth below does not reflect any potential purchases by CPPIB.

 

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Name and address of beneficial owner   Shares beneficially owned
before this offering
    Number of
shares
being
offered
   

 

Shares beneficially owned
after this offering

    Percentage
of shares
beneficially
owned
assuming
exercise of
over-
allotment
option
 
  Number     Percentage       Number