NEW YORK (Reuters) – McGraw-Hill Cos Inc (MHP.N), a textbook publisher and owner of the Standard & Poor’s ratings service, is dropping out of the auction for Interactive Data Corp (IDC.N), sources briefed on the matter said.
Interactive Data, which sells financial information and analytical tools to banks and financial institutions, has been through one round of bids. The deadline for the second round is set for April 28, and a number of private equity bidders remain in the auction, sources said.
With IDC’s stock up 32 percent since Jan. 14, the day before the company announced it was reviewing strategic options, some bidders are starting to feel the valuations are now too high, sources said.
IDC shares were down 1.2 percent at $33.52 on Friday following the news of McGraw-Hill dropping out.
McGraw-Hill and IDC declined to comment.
Pearson PLC (PSON.L), which owns the Financial Times newspaper as well as the world’s largest educational publishing business and Penguin Books, has a 61 percent stake in Interactive Data.
Many private equity firms had formed consortiums to bid for IDC. Groups still in the running for the second round include Advent International with Bain Capital; Warburg Pincus [WP.UL] with Hellman & Friedman and Silver Lake Partners [SILAK.UL]; and Kohlberg Kravis Roberts & Co (KKR.AS) with CVC, sources said.
All the private equity firms either declined to comment or were unavailable for comment.
Interactive Data’s business model allows for stable revenue, making it an attractive buyout target and giving banks the confidence to offer debt for the deal.
Prior to the credit crunch, it was common to finance private equity deals with large amounts of debt. But in recent months, many deals were being financed with a higher proportion of equity.
Goldman Sachs (GS.N), which is representing the sellers, has suggested to potential buyers that it could offer debt financing at a multiple of 5.5 to 5.75 times Interactive Data’s earnings before interest, taxes, depreciation and amortization, some sources familiar with the process told Reuters in February.
The sources said other banks had suggested offering slightly higher leverage multiples — up to 6 times.