Dealing for Data: LSEG Stands Out as Others Ramp Up
Friday, November 1, 2019
By Jeffrey Kutler
If there were any doubts about the strategic importance of data in financial markets, then the $27 billion agreement on August 1 for London Stock Exchange Group to acquire Refinitiv put them to rest. Not exactly a surprise: Data has been on the upswing for years, in finance and beyond, and the trend is unabated, as reflected in the dealmaking around it.
The critical and fundamental role of data in risk management, compliance and regulatory reporting was a factor in a flurry of modest-sized deals, previously reported in Hot Properties: Risk and Compliance Software. Not yet announced then was Accenture's acquisition of London-based advisory firm Parker Fitzgerald, whose CEO, Scott Vincent, said, “Helping clients optimize their performance in a rapidly evolving risk environment remains our utmost priority. Accenture's tremendous scale and scope, coupled with their data- and technology-focused expertise in finance and risk, will enable us to expand our geographic reach and provide high-quality services to an even broader client base.”
LSEG-Refinitiv takes it up to the scale of market infrastructure.
“LSEG's business is highly complementary with Refinitiv's leading global data platform, transaction and distribution network,” Refinitiv CEO David Craig said of the pending merger. “Our aim is to capture the opportunity of data which we believe is driving unprecedented change in the global financial community.”
The price tag on Refinitiv, which was the $6 billion-in-revenue Financial & Risk business of Thomson Reuters before its October 2018 buyout deal with Blackstone Group, is five times what Intercontinental Exchange paid in 2015 for Interactive Data Corp. ICE, the parent of the New York Stock Exchange, back then had a market valuation of $27.5 billion. Today, ICE's market cap tops $52 billion, and its revenue from data services, $1.65 billion in the first nine months of 2019, accounts for about a third of the company's total.
ICE's most recent acquisition was a relatively small one: the Merrill Lynch Option Volatility Estimate Index and other fixed-income volatility indices from Bank of America Merrill Lynch, completed on October 16 and folded into the ICE Data Indices family, which leverages ICE Data Services' pricing, reference data and analytics solutions.
ICE demonstrated data-driven synergy with the October 28 announcement of ICE ETF Hub. The platform, designed to bring efficiencies and standardization to ETF primary trading, “plans to include ICE Data Services' pricing, reference data and analytics, as well as connections to ICE BondPoint and TMC Bonds, which provide fixed-income execution protocols for asset classes including municipals, corporates, Treasuries, agencies and certificates of deposit.”
Nasdaq, too, has significant information services (31% of third-quarter net revenue), index, market data, analytics and market technology business units, though its most recent acquisition, the Center for Board Excellence, will be part of Nasdaq Governance Solutions.
The exchange operator put its market data prowess on display October 24 with the launch of Nasdaq Smart Options. It is described as “a more manageable and less resource-intensive data feed from the U.S. options markets in real time” that “follows in Nasdaq's tradition of innovation and using data to help make markets more transparent and accessible.”
Mergers and Consolidations
The beat thus goes on. Exchange companies moving to diversify their revenue streams have made the most noise, but they are not alone. Merger partners stress their complementary strengths and aim to seize advanced-technology opportunities, often in cloud computing:
- Deutsche BÖrse Group in September announced the formation of Qontigo, a rebranding and relaunching of the business created by the acquisition of investment and risk management technology innovator Axioma - an early and aggressive adopter of cloud - and its combination with Deutsche BÖrse's STOXX and DAX indices.
“With Qontigo, we are creating a buy-side intelligence leader that provides indexing products and analytics to meet the growing demand for increasingly sophisticated solutions and a platform for future growth in line with our Roadmap 2020 ambitions,” said Stephan Leithner of Deutsche BÖrse's executive board, referring to the three strategic-plan pillars of organic growth, programmatic M&A, and new technologies.
Sebastian Ceria, founder and CEO of Axioma, is CEO of Qontigo, headquartered in Eschborn, Germany. Growth equity firm General Atlantic invested approximately $720 million in Qontigo, which partly financed the Axioma acquisition. Deutsche BÖrse said its index business was valued at €2.6 billion and Axioma at $850 million in the transaction.
General Atlantic managing director and head of EMEA Gabriel Caillaux said, “We have strong conviction that Qontigo can deliver a fully integrated, joint buy-side client proposition that builds upon the indexing and portfolio/risk analytics legacies of the STOXX and Axioma businesses. We look forward to working with management and Deutsche BÖrse to deliver strong growth and value creation to Qontigo's clients as well as our investors.”
During Deutsche BÖrse's October 29 earnings call, CEO and executive board chairman Theodor Weimer said, “Qontigo equips our clients to address trends reshaping the investment industry, including the rise of passive investing and smart beta, new technology infrastructure for scale and the shift towards customization of services.”
There may be more to come, as “beyond organic growth, we continue to actively pursue M&A opportunities,” Weimer said. “Only the combination of organic and inorganic growth fully unlocks the growth potential of this great company. Our M&A strategy is unchanged . . . With the Axioma transaction, we have strengthened our pre-trading offering significantly and improved access to the buy side for the entire Deutsche BÖrse Group. Qontigo now serves as the platform to also further grow inorganically in the analytics business.”
- SS&C Technologies Holdings announced a definitive agreement in September to acquire Algorithmics, a venerable risk analytics provider owned by IBM since 2011. SS&C, a technology holding company with some 18,000 financial and health care industry clients, said it is gaining more than 250 clients in the deal, along with 350 employees and offices in 25 countries. Applications of Algorithmics' analytics include x-value adjustment (xVA), Fundamental Review of the Trading Book (FRTB), Standardized Approach for Counterparty Credit Risk (SA-CCR), Current Expected Credit Loss (CECL) and Targeted Review of Internal Models (TRIM).
“The companies we serve face a rapid pace of regulatory change and increasing need for integrated real-time and predictive analytics,” said SS&C chairman and CEO Bill Stone. “The addition of Algorithmics enables us to empower clients in the global financial services industry with innovative, cloud-based solutions and premium services to help them navigate enterprise risk successfully.”
“SS&C's commitment to monitoring and delivering solutions for industry regulations in support of clients mirrors Algorithmics' commitment to do the same,” said Mina Wallace, IBM vice president, risk analytics, who will be senior vice president and general manager, SS&C Algorithmics, when the transaction closes. “Together with SS&C, we will be able to accelerate delivery of all solutions on the cloud and provide thought leadership in risk management.”
- Confluence Technologies on October 28 announced its acquisition of StatPro Group. The £161.1 million ($207 million) deal brings Pittsburgh-based Confluence, a specialist in data management and reporting for the investment management industry, together with what founder and CEO Mark Evans called “performance and attribution, portfolio analysis and other data and risk support services [that] are deeply complementary to Confluence's offerings.”
“By acquiring StatPro, we will accelerate our plans to migrate Confluence's performance solutions into the cloud, and continue both organizations' history of creating truly innovative, transformative products that our industry has come to value,” Evans said. “Both companies are founder-led with cultures of innovation, integrity, imagination, discipline and service, and we are pleased to welcome the employees of StatPro to the Confluence team.”
Founded in 1994, StatPro has 10 offices servicing more than 450 clients in 37 countries - which will enable Confluence to expand its presence in the U.K., continental Europe, Asia and South Africa. Confluence is backed by private equity firm TA Associates. Its products are licensed to eight of the top 10 global service providers, and all of the top 10 global asset managers have business processes automated through Confluence.
- Hazeltree, a leader in treasury management and portfolio finance solutions, said on October 3 that it acquired ENSO Financial Analytics from CME Group. ENSO, which developed a portfolio analytics platform for hedge funds and prime brokers, and captures data on more than $1 trillion in hedge fund assets under advisory, had been a subsidiary of NEX Group, formerly ICAP, which CME acquired in November 2018.
“The platforms and data solutions from Hazeltree and ENSO are highly complementary to our services and network of buy-side and sell-side clients,” said Pierre Khemdoudi, global co-head of equities data and analytics at IHS Markit, which participated in the transaction as an investor. “Our investment is a way to help align our solutions to serve the evolving needs of our customers while also establishing a foundation for potential further integration and partnerships in the future.”
The companies' “combined talents in treasury, portfolio finance, data, and technology will offer unparalleled expertise and support to investment managers, empowering them with greater data insights, better transparency, improved workflows, and efficient execution to capture unrealized value,” said Hazeltree president and CEO Sameer Shalaby. “The acquisition will result in a truly unique, integrated solution with extensive scale and talent, to support more than 200 important clients, who can now benefit from the best solutions and services available.”
- Liquidnet, which pioneered with off-exchange block trading for the buy side, is pulling three data and technology acquisitions into a new business unit, Waters Technology has reported. They are artificial-intelligence-driven trading analytics platform OTAS Technologies, acquired in 2017, and two additions this year: institutional research aggregator RSRCHXhange; and Prattle, a developer of predictive analytics using natural language processing and machine learning. Together they give asset managers “access to a set of powerful investment analytics leveraging AI methodologies across both structured and unstructured data,” Liquidnet said. “These tools can revolutionize the way fund managers source, access, evaluate and act on market information and insight to strengthen investment decisions and help generate alpha.”
Euronext and SIX Group
Paris-based Euronext and Switzerland's SIX Group have signaled intentions to build bigger data and related businesses around their core exchange and market-infrastructure activities.
Euronext has several hundred million euros available for acquisitions and could tap equity markets for more in the interest of “transforming its revenue model,” Reuters reported on October 10. CEO Stephane Boujnah spoke of the possibility of a “baby Refinitiv” deal.
SIX announced that Marion Leslie, formerly of Refinitiv, will be joining its executive board as head of the Financial Information business on January 1. She will succeed Robert Jeanbart, who is retiring. He headed the unit since 2014 and oversaw a significant expansion in regulatory data and services while strengthening the reference data and corporate actions business, SIX said.
The company's CEO, Jos Dijsselhof, said Leslie “knows the financial information business very well and with her at the helm we will drive our financial data business to the next level.”
She started with Thomson Reuters in 1994 and became managing director in 2013, with responsibility for the data business in the areas of regulation, pricing and reference data. Her last position at Refinitiv was managing director, enterprise, responsible for delivering market data, platforms and services to the global financial markets.