Financial institutions M&A sector trends: stock exchanges/clearing houses — H1 2019 and outlook for H2 2019

CURRENT MARKET

• Upward

WE ARE SEEING

• Inorganic expansion by larger exchanges:
  • Horizontally (e.g., Euronext's acquisition of control of Oslo Børs and ATHEX's equity investment in Kuwait Stock Exchange)
  • Vertically (e.g., LSE's acquisition of additional 4.9% of Euroclear and securing of board representation)
• Deployment of investment capital resources towards fintech (in particular, data analytics)

KEY DRIVERS

• Building multijurisdictional scale:
  • Within Europe (e.g., Euronext operates exchanges in Paris, Lisbon, Amsterdam, Brussels and Oslo)
  • Europe outbound (e.g., Athens Stock Exchange's consortium acquisition of 44% of Kuwait Stock Exchange)
  • US inbound (e.g., Nasdaq operates exchanges in Copenhagen, Stockholm, Helsinki, Tallinn, Riga and Vilnius)
• Concerns around non-viability of the independent stock exchange operation model in the long term
• Bolt-on acquisitions:
  • Investment in trade efficiency technology
  • Diversification into information and post-trade services
• Nationalistic attitudes and perceived market foreclosure apprehensions continuing to mar transactional deals

TRENDS TO WATCH

• Larger exchanges seeking scale. However, mergers between core European exchanges are unlikely, and antitrust concerns will need careful navigation (e.g., divestment commitments)
• Investors in larger exchange operators seeking to cash out
• Possibility of smaller deals in the foreign exchange and commodities space

OUR M&A FORECAST

M&A to achieve scale is still high on agendas of the boards of core European exchanges. However, the aborted LSE/ Deutsche Börse merger highlights the political, antitrust and regulatory challenges for an EU merger-between-equals.

Other financial services—Publicly reported deals & situations

Inorganic growth

Acquisitions:

• Deutsche Börse: Acquisition of Axioma (April 2019)
• London Stock Exchange: Acquisition of 4.9% of Euroclear (January 2019)

Horizontal cooperation:

• MarketAxess: ETF JV with Virtu (April 2019)

Vertical cooperation:

• SIX: Global sanctions data JV with Eagle Investment Systems (April 2019)

International expansion

Out-bound:

• Euronext: Acquisition of majority control of Oslo Børs (May 2019)
• Nasdaq: Acquisition of 37% of Oslo Børs (April 2019)
• Athens Stock Exchange: Consortium acquisition of 44% of Kuwait Stock Exchange (February 2019)

In-bound:

• Singapore Exchange: Acquisition of 20% of BidFX (March 2019)

Digital world demands– outsourcings and bolt-ons

• London Stock Exchange: Acquisition of Beyond Ratings (June 2019)
• Liquidnet: Acquisition of RSRCHXchange (May 2019)
• Deutsche Börse: Multi-year cloud services contract with Microsoft Azure (May 2019)
• Nasdaq Technology: Acquisition of Cinnober Financial Technology (January 2019)
• IHS Markit: Minority equity investment in Digital world Cobalt (January 2019)

Regulatory intervention

• European Central Bank: Strong criticism of new proposed ESMA powers for boosting supervision of clearing houses (March 2019)
• European Securities and Markets Authority: Proposed new powers to monitor clearing houses' risk management and to determine whether non-EU institutions should move to the EU (March 2019)

Brexit contingency planning

• Aquis Exchange: French Prudential Supervision and Resolution Authority approval for new Paris hub (January 2019)

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