Exchange M&A Comes To The Fore
Deutsche Börse said it is preserving its firepower for acquisitions as analysts said management’s efforts to accelerate growth inorganically assume a greater urgency following the German exchange’s results.
The exchange reported its first quarter results on 29 April and said secular net revenue increased by approximately 5%, in-line with the company’s plan.
— Deutsche Börse Group (@DeutscheBoerse) April 29, 2019
Chris Turner, analyst at German bank Berenberg, said in a report that the results were in line with consensus expectations due to help from a one-off gain. “With the group facing a mixed cyclical outlook, management’s efforts to accelerate growth inorganically assume a greater urgency, in our view,” he added.
Last month Deutsche Börse announced that it was acquiring Axioma for $850m and combining the provider of cloud-based portfolio and risk management software with its STOXX and DAX index businesses to form a new company. The two firms have had an existing partnership since 2011 and have jointly developed products, including factor indices and exchange-traded fund offerings.
Sebastian Ceria, founder and chief executive of Axioma, said in a statement: “The union of Axioma, STOXX and DAX under the Deutsche Börse umbrella creates a growth company that is uniquely equipped to help clients capitalize on the critical trends now reshaping the investment management landscape.”
Turner said the tie-up between Deutsche Börse’s STOXX business and Axioma demonstrates a creative approach to inorganic growth, which is encouraging, although the impact on earnings will be modest.
“Deutsche Börse’s efforts to acquire the FXall business hold out the prospect for a more material creation of shareholder value,” Turner added. “With little visibility on probability of completion, let alone the structure, of any such deal, we remain Hold rated on the shares.”
The German exchange confirmed this month that it is in concrete negotiations to acquisition some foreign exchange businesses from data provider Refinitiv
Deutsche Börse said in its results presentation that the Axioma transaction strengthens its pre-trading offering and improves buy-side access. The presentation said: “In addition, smart transaction structure crystalises value of index asset, ensures value generation and preserves M&A firepower.”
Consultancy Opimas said in a report last month that exchanges are expected to make acquisitions to expand their data businesses over the coming year and enter the alternative data space.
“Data still account for a minority of revenues for most exchanges,” said the report. “Over the coming year, we expect to see a number of these exchanges make acquisitions to bolster their data businesses, as they continue to seek additional revenue streams.”
However the increasing cost of market data from exchanges has led to complaints from members.
Octavio Marenzi, founder and chief executive of Opimas, said in the report that these complaints are misplaced as market data revenues have been falling at some of the largest exchanges including CME, Deutsche Börse and London Stock Exchange Group.
“For those exchanges where we have seen strong growth, this has typically come from areas such as indices or analytics and has been fuelled by a large number of acquisitions in the area, rather than organic growth,” he added.
David Schwimmer, chief executive of the London Stock Exchange Group, said in its results presentation this week that the UK firm is investing in and growing the Information Services business, including developing multi-asset and data and analytics.
Intercontinental Exchange, the US operator of global exchanges and clearing houses and provider of data and listings services, today announced that it has agreed to acquire Simplifile, which operates an electronic platform for residential mortgage records. The acquisition will expands the ICE Mortgage Services portfolio.
Paul Clifford, founder and president of Simplifile, said in a statement: “We’ve seen how ICE has helped to transform markets going through an analog to digital conversion and has made them more transparent and efficient for all participants. We are closely aligned with ICE’s vision as it applies to the residential mortgage industry and, as we become part of ICE, our team at Simplifile will continue our efforts to simplify the industry for all of its stakeholders.”
The service will enable the mapping of risk factors to a pool of global derivatives data.
Euronext vet Lee Hodgkinson is the fintech's CEO.
There is a lack of visibility of the total FX volume across all venues.
Buy side needs consolidated liquidity on a single platform.
Only 5% of off-venue volume in vanilla euro interest rate swaps is being reported.