Reuters  Aug 30  Comment 
Standard & Poor's and other companies paid A$215 million ($157 million) to settle a lawsuit in Australia where they were accused of overlooking risks when awarding high ratings to opaque investments that imploded in the global financial crisis.
Reuters  Jun 26  Comment 
A credit ratings analyst for Standard & Poor's and two other defendants were criminally charged by U.S. prosecutors on Tuesday with insider trading related to Sherwin-Williams Co's $9.3 billion purchase of Valspar Corp.
The Hindu Business Line  May 30  Comment 
Press Trust of India McGraw-Hill Asian Holdings on Wednesday picked up 6.32 lakh shares of rating agency Crisil for an estimated ₹117 crore throug
guardian.co.uk  Apr 20  Comment 
One day perhaps this government will not treat voters like fools, but it seems we shall have to wait a bit longer Sign up to receive the latest Australian opinion pieces every weekday It has not been a good week for the government. I...
Channel News Asia  Apr 13  Comment 
Deutsche Bank's sudden change in chief executive could prolong the lender's restructuring, ratings agency Standard & Poor's (S&P) said as it placed the bank on "credit watch negative" late on Thursday.
Reuters  Mar 12  Comment 
Ratings agency Standard and Poor's weakened its risk assessment criteria to win business and turn out high ratings on opaque debt products that started to unwind during the global financial crisis, an Australian court heard on Monday.


McGraw-Hill Companies, Inc. (NYSE: MHP) is a global information services provider doing business in the education, financial services, and business information markets. The company does everything from selling textbooks to providing credit ratings and even operates television stations. Operating in three distinct segments – Education, Financial Services, and Information & Media – the company has several strong brand names in McGraw Hill Publishers, Standard & Poor’s, J.D. Power & Associates, and formerly BusinessWeek (which was officially sold to Bloomberg L.P.). In FY 2010, McGraw-Hill's revenue was $6.1 billion.[1]

Company Overview

Business Segments

McGraw-Hill operates under three main business segments:

  • Financial Services (44% of revenue): Operating as Standard & Poor’s, McGraw-Hill’s Financial Services segment offers fee-based standardized credit ratings, research, and analysis of fixed income securities and debt instruments. Firms often depend on such ratings to lower their cost of capital and provide liquidity, since investors associate with the trusted S&P ratings system. This division is the largest revenue unit of the company and generates a disproportionately high operating profit as well. This segment has several tailwinds and competitive advantages through its operations as Standard & Poor’s, including increasingly large and complex worldwide capital markets in which market participants demand trusted, reliable, distilled information, and ratings on trillions of dollars worth of securities and financial obligations.
  • Education (40% of revenue): The Education segment consists of McGraw-Hill Publishers, which publishes educational textbooks and sells them to elementary, high school, public and private universities, professional, international, and adult educations markets. The segment generates the second most in revenue, but it is much less profitable than Financial Services. It enjoys the bulk of a moderately lucrative $800 million textbook publishing industry. With high school and college enrollment rates increasing, McGraw-Hill stands to benefit from long-term societal trends toward higher education, though it is subject to short-term changes in state-wide book adoption rates.
  • Information & Media (16% of revenue): The Information & Media segment is geared towards providing information and transparency to industries. The company's JD Power & Associates (JDPA) is a leading provider of industry data, customer satisfaction surveys, rankings, and marketing information in the automobile industry, which comprises 70% of JDPA’s revenue. JDPA has been building a portfolio to cover additional industries, including finance, insurance, and homebuilding; collectively, these generate the remaining 30% of JDPA revenue. The company also owns Platts, the leading information provider for the energy and metals market. In addition to operating business-to-business publications, this segment controls the company's television broadcasting of several ABC affiliate stations. The segment suffers from the lowest operating margins of MHP’s divisions, and like many consumer cyclical and advertising reliant mediums, has seen eroding margins and stiff competition from the Internet as circulation decreases and advertisers leave.

Business Growth

FY 2010 (ended December 31, 2009)[1]

  • Net revenue increased 3.6% to $6.2 billion.
  • Net income increased 13% to $730 million.

Trends and Forces

McGraw-Hill is in essence a provider of information through a variety of mediums and in a number of fields. Positive trends such as continued strong demand for information, population growth, college enrollment, globalization, financial sector expansion, and technology all provide tailwinds for the company.

Evolution of Global Capital Markets

Businesses of the world need capital, and they often raise it through the issuance of debt. Financial services companies that provide this capital rely on objective, trusted opinions to understand how much risk they are assuming and what may represent an appropriate interest rate. McGraw-Hill’s Standard & Poor’s provides such a service, and an increase in businesses capital needs correlate with a rise in demand for S&P’s ratings. The growth in the global issuance of rated debt has grown at a compound annual rate of approximately 23% since 2002, providing a tremendous tailwind for S&P.

Capital markets have also become more complex and rapidly changing, providing both a challenge and an opportunity for the company. While increasing complexity and change makes it more difficult for S&P to provide reliable and consistent ratings, it also boosts the demand for ratings from investors, who face the same daunting task of analyzing more complex securities and obligations.

Complex structured finance products typically involve an entity (corporation or government) using "safer" and more reliably creditworthy assets such as accounts receivable as collateral for debt. Such a transaction enables the company to obtain a lower interest rate on issued debt by isolating the "safe" collateral asset from the company itself (the less safe alternative). For instance, a company rated B by S&P may be able to use its accounts receivable to obtain an A investment grade rating on debt. The number of assets used in such transactions has increased in the past two decades. Whereas only around 20 asset classes were “packaged” for securitization in 1990, over 200 are currently available. Structured obligations are typically highly complex than standard issuances of corporations and governments, and as a result, investors enjoy the benefit of a trusted, easily understood rating from S&P.

The trends of general growth and increasing complexity in the global capital markets will likely continue worldwide. Markets continue to emerge, global economic expansion continues to fuel demand for capital and, as a result, firms and investors seek more sophisticated means of securitizing asset classes, which in turn bring in more ratings fees for S&P. S&P continues to expand internationally to capitalize on these trends, though the majority of its revenue still comes from the United States, the world’s largest and most advanced capital market.

The Internet's Effect on Print Media

Over the past decade, print publications have suffered a vicious cycle of decline. New, cheaper, easier-to-access mediums, most notably the Internet, have led to lower generally lower circulation and readership of traditional publications like magazines, newspapers, and other periodicals. As this happened, advertisers simultaneously began leaving or paying less for exposure. These compounding factors have produced eroding margins and declining profits for many companied depending on revenue from traditional media advertising.

McGraw-Hill’s Information & Media segment has suffered much the same fate, though it has seen top-line growth through acquisition (such as JDPA).

However, the company has also been able to capitalize on technological innovation by introducing new products itself. The company's Information & Media division, along with competitors, has moved towards building out their own Internet properties and expand its online presence. The low barriers to entry and extreme competition for viewership on the Internet may likely lead to permanently lower margins.

The broader impact of the Internet on McGraw-Hill's business may have a generally positive net effect. These advances have facilitated the flow and accessibility of information about investments available throughout the world. The globalization of the financial world boosts demand for S&P’s services as it practically necessitates a credible rating system to compare different geographic regions on a standard scale. S&P provides a convenient and trustworthy way for sizing up all opportunities and making sense of the vast amount of information flowing among market participants.

Comparison to Competitors

The company maintains market share dominance in its two largest segments, Education and Financial Services, each of which have a number of formidable competitors. The most notable competitors by segment are:

  • Education: Houghton Mifflin, Pearson, Reed Elsevier
  • Financial Services:Moody's (MCO), Fitch, A.M. Best, Dominion Bond Rating Service
  • Information & Media: Most business publication or online media (e.g., Dow Jones (DJ), and any consumer satisfaction market research firms


  1. 1.0 1.1 MHP 2010 10-K "Consolidated Statement of Income" pg. 41
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