Scope-Feri Deal

Rating Agencies Merger Targets U.S. Giants

The Standard and Poor's building in New York, in this August 2, 2011 file photo. Ratings agency S&P cut Russia's sovereign credit rating to junk status on Monday, bringing it below investment grade for the first time in a decade. REUTERS/Brendan McDermid/Files (UNITED STATES - Tags: POLITICS BUSINESS) THIS IMAGE IS PART OF THE PACKAGE "RUSSIA'S CREDIT RATING DOWNGRADED TO JUNK". TO FIND ALL IMAGES PLEASE SEARCH "RUSSIA CREDIT"
Scope wants to take on the major U.S. credit agencies like Standard and Poor's.
  • Why it matters

    Why it matters

    Berlin-based Scope and its new acquisition Feri Eurorating have attracted some big name clients and also specialize in lucrative ratings sectors.

  • Facts

    Facts

    • Rating agency Scope will today announce the takeover of smaller rival Feri Eurorating Services.
    • The purchase price is believed to amount to a seven-figure euro sum.
    • Scope has already secured clients such as German state development bank KfW, Switzerland’s UBS and German investment group Haniel.
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    Audio

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Berlin-based rating agency Scope will today announce the takeover of smaller rival Feri Eurorating in a bid to become Europe’s largest financial assessor, Handelsblatt has learned.

Feri Eurorating, based in Bad Homburg near Germany’s financial capital Frankfurt, employs 30 staff, and the purchase price is believed to amount to a seven-figure euro sum.

“The takeover underlines our ambition to become the European alternative to the U.S. agencies,” said Scope boss Torsten Hinrichs.

Scope has been growing fast, recruiting dozens of credit analysts in the last three years, many of them poached from the three big U.S. agencies Standard & Poor’s, Moody’s and Fitch. It has increased its staff to 80 and opened offices in Frankfurt, London, Paris, Madrid and Milan.

“The two agencies complement each other perfectly.”

Torsten Hinrichs, Scope Chief Executive

Scope has managed to elbow its way into the core business of the dominant trio — the rating of large banks and companies. In the last few months, German state development bank KfW, Switzerland’s UBS and German investment group Haniel have all started having themselves officially rated by Scope. That’s a respectable achievement although the “Big Three” still control 90 percent of the European rating market.

Scope was attracted by Feri Eurorating’s strength in rating investment funds, an area of research where Scope is virtually unrepresented, as well as by its expertise in real estate and sovereign bonds. Scope by contrast has focused on banks, companies and structured finance. “So the two agencies complement each other perfectly,” said Mr. Hinrichs.

The only area where Scope and Feri are in direct competition has been in the rating of bonds issued by small and medium-sized enterprises, but that market has been discredited by exaggerated positive ratings in recent years and Scope no longer regards it as a priority.

Scope plans to wholly integrate Feri Eurorating. But that doesn’t mean the Feri brand name will disappear entirely. Asset management firm Feri, a part of German financial services group MLP, will remain. Scope is only buying the Feri rating business.

It will fund the purchase through a capital hike, its fourth in the past 18 months, with shares going to “personalities from the world of finance and business,” said Mr. Hinrichs. Its investors include founder Florian Schoeller, a self-made businessman, and Stefan Quandt, one of Germany’s richest men, whose family controls automaker BMW and who is Scope’s second-biggest shareholder.

 

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Other investors include the former head of Austrian bank Raiffeisen International, Herbert Stepic, the former head of Citigroup’s British operations, Maurice Thompson, and Manfred Gentz, a lawyer and businessman.

“Until now our investors came exclusively from Europe. Since the last financing round investors from America are also on board,” said Mr. Hinrichs.

Scope has obtained a total of €20 million ($22 million) in capital hikes since 2013.

To boost its prestige, it will try to win new big-name customers, although the business with lesser-known ratings of structured finance is more lucrative.

The Berlin firm has established itself as a real competitor to the big U.S. agencies in this sector. Mr. Hinrichs said Scope rated loan securitizations worth €5 billion in 2014, rising to €25 billion last year “and we will achieve further strong growth in this area this year.”

He won’t reveal concrete sales or earnings figures, only saying that the company will get “close to the profit threshold” this year despite its investments. Revenues rose more than 50 percent in the last 12 months, he added.

It’s unclear if he’ll ever manage to catch up with the Big Three — but there’s no doubt that his ambitions go further than the takeover

 

Heinz Roger Dohms is a correspondent for Handelsblatt. To contact the author: dohms@handelsblatt.com

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