Sector trends - July 2022: Stock Exchanges/Trading Venues

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White & Case LLPUK & European Financial Services M&A: Sector trends H2 2021 | H1 2022 — Stock Exchanges/Trading Venues

Europe's FMI goes digital—data analytics, capital markets solutions, RegTech and DLT-based tech acquisitions feed the steady stream of M&A activity.

Overview

Current Market

  • Slight dip in M&A activity, except for Europe's premiere trading venues

We Are Seeing

  • Financial market infrastructure goes digital:
    • Data drive through acquisitions and equity investments (e.g., Deutsche Börse's acquisition of Kneip and LSE's equity investment in Finbourne)
    • Capitalising on capital markets (e.g., LSE's minority investment in Floww and Deutsche Börse's minority investment in WeMatch)
    • Deployment of RegTech solutions (e.g., LSE's acquisition of Global Data Consortium)
    • Increasing comfort with DLT-based technology (e.g., Euroclear's equity investment in Fnality)
  • Cashing out of "liquid" stakes by:
    • Banks (e.g., Sovcombank's disposal of 2.91% of SBP Exchange)
    • Stock exchanges (e.g., Intercontinental Exchange's disposal of 9.85% of Euroclear)

Key Drivers/Challenges

  • Stock exchanges anticipate increasing demand for:
    • Sustainability data (e.g., Euroclear's equity investment in Greenomy)
    • Carbon credits (e.g., Deutsche Börse's equity investment in AirCarbon Exchange)
  • Stock exchanges seek:
    • Scale through horizontal growth (e.g., ATHEX's acquisition of 10.24% of BELEX)
    • Scope through diversification (e.g., SIX's acquisition of Ultumus)
    • Scope through vertical integration (e.g., LSE's acquisition of Quantile)
    • To leverage new technology to enhance service delivery (e.g., Clearstream's asset management data analytics JV with FNZ)
  • "Digital era" FMI flex M&A muscle—chasing the holy grail for digital assets:
    • Fully integrated digital asset exchange (e.g., Valereum's acquisition of 90% of GSX)
    • Combine banking with DLT, to offer faster and more cost-effective trading services (e.g., BitMEX's acquisition of Bankhaus von der Heydt)
    • Building transatlantic reach (e.g., Coinbase's acquisition of FairX)
  • Private equity view FMI as technology-enhanced businesses (e.g., Silver Lake's acquisition of 9.85% of Euroclear)

Trends to Watch

  • Stock exchanges compete for ESG data/data analytics providers, as demands from European banks and asset managers increase at an exponential rate

Our M&A Forecast

Europe's premier trading venues to continue inorganic growth rally, supported by colossal M&A war chests. However, as trade processing margins compress, vertical integration will become increasingly critical to secure profitability.

Data-driven growth

  • London Stock Exchange (Data analytics): Acquisition of MayStreet (May 2022)
  • SIX (Trade repository): Acquisition of 50% of REGIS-TR (April 2022)
  • Deutsche Börse (Data analytics): Acquisition of Kneip (March 2022)
  • London Stock Exchange (Investment data): (Undisclosed) equity investment in Finbourne (October 2021)
  • SIX (Index and ETF data): Acquisition of Ultumus (July 2021)

Horizontal expansion

  • Warsaw Stock Exchange (Stock exchange): Acquisition of 65.03% stake in Armenia Securities Exchange (May 2022)
  • London Stock Exchange (Private capital marketplace): Minority equity investment into Floww (March 2022)
  • Deutsche Börse (Wholesale derivatives platform): Acquisition of minority stake in WeMatch (October 2021)
  • Athens Stock Exchange (Stock exchange): Acquisition of 10.24% of Belgrade Stock Exchange (August 2021)

Tech investments

  • London Stock Exchange (ID verification): Acquisition of Global Data Consortium (April 2022)
  • Euroclear (DLT-based payment-on-chain): Equity investment into Fnality (March 2022)
  • London Stock Exchange (Trading technology): Acquisition of Tora (February 2022)
  • London Stock Exchange (Efficiency optimisation): Acquisition of Quantile Group (December 2021)

Vertical partnerships

  • Clearstream: Data analytics JV with FNZ (April 2022)

ESG investments

  • Deutsche Börse (Carbon credit trading): Equity investment into AirCarbon Exchange (March 2022)
  • Euroclear (ESG compliance): Equity investment in Greenomy (February 2022)

PE firepower

  • Silver Lake: Acquisition of 9.85% of Euroclear (October 2021)

Cashing-out of "liquid" stakes

  • Sovcombank: Disposal of 2.91% of SPB Exchange (October 2021)
  • Intercontinental Exchange: Disposal of 9.85% of Euroclear (October 2021)

Fintechs flex muscle

  • BitMEX: Acquisition of Bankhaus von der Heydt (January 2022)
  • Coinbase: Acquisition of FairX (January 2022)
  • Valereum Blockchain: Acquisition of 90% of Gibraltar Stock Exchange (January 2022)
  • FTX: Participation in US$150 million Series C extension funding round for Chipper Cash (November 2021)

IPOs

  • SPB Exchange: US$175 million SPB Exchange IPO (November 2021)

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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