London Stock Exchange Group PLC plans to acquire data tracking firm Refinitiv in a deal worth $27 billion. LSE’s bid is only among the latest trends of exchange operators purchasing companies that focus on providing data on financial markets in hopes of increasing revenue. With Refinitiv, LSE also hopes to widen its global reach.
Exchange operators all over the world are always looking to consolidate for the better part of the last decade. However, resistance from governing bodies caused many exchange operators to fail in tie-up plans with significant competitors. Government authorities believe that exchange operators are seen as national symbols for their respective countries. Because of the symbolism attached to exchange companies, the government puts up the resistance on the possibility of a foreign firm gaining control of it.
Also, profits in traditional business transactions like stock trades are experiencing a dip. According to industry sources and analysts, the decline in profits is forcing industries to pursue business avenues with the promise of growth. Data products are currently experiencing an increase in revenue and do not look to stop soon. Because of data products’ trend, exchange operators are trying desperately to acquire the possible revenue stream. Aside from the products, exchanges will be able to sell services involving data and information. Among the possible services they could sell includes fee-based service and index, assuming they can pull off the trade.
Greenwich Associates market structure and technology research head Kevin McPartland believes that data is valuable to financial markets today more than ever. Refinitiv, which is a leading financial data analytics provider in the world, is currently under buyout firms Thomson Reuters Corporation and Blackstone Group Inc. If the $27 billion deal with LSE comes to fruition, the data company will ultimately belong to the exchange operator.
Aite Group analyst Spencer Mindlin shares that LSE’s planned acquisition of Refinitiv will be beneficial for the exchange operator. LSE will become more competitive and appealing for potential partners because of the deal. Both LSE and Thomson Reuters did not make an update after their previous statements, which was regarding their confirmation of deal discussions. Blackstone also made no comments about the acquisition.
LSE reveals that the deal will help widen its distribution capabilities and data output. It will also increase the global footprint and diversify trading ability, giving LSE a chance to grow in fields related to technology and data. The deal will enable LSE to cut over 350 million pounds in its annual costs for the next five years while adding earnings per share revenue during the first year of the acquisition.
Preparing for Global Expansion
Refinitiv, which is based in London, reaches over 40,000 clients. Most of their clients are investment professionals and traders from over 190 countries. Exchange Invest industry consultant Patrick Young shares that LSE’s deal with Refinitiv will help broaden its global reach. LSE’s reach is drawing a comparison to the European Union’s scope.
David Schwimmer, Chief Executive of London Stock Exchange, revealed that political oppositions painted big mergers as complicated options to consider. LSE failed to merge with Deutsche Boerse AG several times in the past. The company also encountered difficulties during its failed plan to acquire TSX Inc., Canada’s leading exchange operator.
LSE’s Bet is Part of Trend in Major Exchanges
Exchange operators Nasdaq Inc., Deutsche Boerse, and Intercontinental Exchange Inc. managed to enter successful deals seeking to extend their business in other areas aside from stock trading. Exchanges’ leading service is to provide real-time market data, which generates annual revenue of over $1.3 billion in the US alone. Data revenue also allows exchanges to get over billions of dollars for related services and products.
Banks and investors that are paying for exchange operators’ services are trying to get the pricing for data fees lowered with the help of the EU. Investment firms are calling on ESMA to study market data fees amid the falling costs of data storage and computing.
Xavier Rolet, former LSE Chief Executive, is responsible for the exchange’s diversity in revenue in 2009. According to LSE’s annual report last year, information services generate about 40% of the company’s total revenues. Post-trade services follow information services but come with a wide margin. IPOs and stock trading, meanwhile, is only responsible for 19% of total revenue in 2018. The percentage was a big dip compared to its 46% claim ten years ago.