Financial Institutions M&A sector trends: Stock exchanges/clearing houses/trading venues — H1 2020 and outlook for H2 2020.

Clash of the pan-European titans—-M&A plans signalled by LSE, Euronext and Deutsche Börse

Overview

CURRENT MARKET

• Consistent; high activity levels

WE ARE SEEING

• European giants on the move:
  • Horizontal mergers (e.g., SIX's acquisition of 93.16% of BME followed less than 18 months after Euronext's acquisition of Oslo Børs)
  • Domestic consolidation (e.g., BÖAG Börsen's acquisition of a majority stake in ICF Bank)
  • Vertical integration with post-trade utilities (e.g., Euronext's acquisition of 70% of VP Securities)
  • Cross-border collaboration (e.g., SIX's and Nasdaq's microwave data transmission JV)
  • Disciplined implementation of innovation strategies, targeting risk management (e.g., Euronext's acquisition of Ticker Software and Sidonnaisuusrekisteri.fi) and data analytics (e.g., LSE's acquisition of Refinitiv)

KEY DRIVERS/ CHALLENGES

• European champions seek scale and volume:
  • Diversification of offerings (e.g., Moscow Exchange's acquisition of a minority stake in BierbaumPro)
  • MiFID II failed to shift more equities trading to stock exchanges
  • IPOs are temporarily shelved in the COVID-19 climate
  • Availability of bank-owned non-core financial market infrastructure assets (e.g., disposal of VP Securities by Danske Bank, Nykredit, Nordea and Jyske Bank)
• Politics interferes with deal-making:
  • Nationalistic attitudes (e.g., Italian government threatened "direct public intervention" in Borsa Italiana in event of sale by LSE)
  • Preservation of domestic utilities (e.g., Türkiye Varlık Fonu's increase of its stake in Borsa İstanbul to 90.6%)
  • Global tensions (e.g., China temporarily halted cross-border listings collaboration between Shanghai Stock Exchange and LSE)

TRENDS TO WATCH

• Clash of the pan-European titans—aggressive M&A plans signalled by LSE, Euronext and Deutsche Börse
• Banks offload "liquid" financial market infrastructure stakes

OUR M&A FORECAST

M&A to achieve scale remains high notwithstanding the COVID-19 pandemic. Competition between market participants for the same high-value targets is likely to intensify (e.g., Deutsche Börse's and Euronext's rumoured interest in Borsa Italiana)

Publicly reported deals & situations

Inorganic growth

Market highlight:

SIX's successful acquisition of a controlling stake in BME will result in the combined group being the third-largest financial market infrastructure operator in Europe by revenue

• SIX (Stock exchange): Acquisition of 93.16% of Bolsas y Mercados (June 2020)
• BÖAG Börsen (Settlements): Acquisition of majority stake in ICF Bank (April 2020)
• Euronext (Post-trade utility): Acquisition of 70% of VP Securities (April 2020)
• Moscow Exchange (e-FX): Acquisition of minority stake in BierbaumPro (March 2020)

International expansion

• IHS Markit (Singapore): Acquisition of Catena Technologies (May 2020)
• SIX and Nasdaq (Switzerland): Microwave data transmission JV (April 2020)

The promise of returns

• Consortium of Belgian: investors Acquisition of more than 5% of Euroclear (June 2020)
• J.P. Morgan: Digital post-trade services streamlining JV with Bloomberg (June 2020)
• Guru Capital: Acquisition of ETX Capital (May 2020)
• Citibank and HSBC: Participation in US$10.5 million Series B funding round for Spark Systems (May 2020)
• ALREG: Acquisition of 5% by Credins Bank (April 2020)
• Borsa Istanbul: Acquisition of 10% by Turkish Wealth Fund (January 2020)

Risk management

• Euronext (Insider list and liability register management): InsiderLog's acquisition of Ticker Software and Sidonnaisuusrekisteri.fi (June 2020)

Click here to download Financial services M&A experiences shortness of breath in H1 2020 (PDF)

[View source.]