Decisive inorganic growth decisions by London Stock Exchange, Deutsche Börse, Nasdaq and Euronext set a furious pace for European trading venue M&A activity.

Overview

Current market

• Moderately high M&A activity levels

We are seeing

• Clash of the pan-European titans—decisive M&A activity by London Stock Exchange, Deutsche Börse and Euronext:
  • Horizontal consolidations (e.g., European Energy Exchange's acquisition of Nasdaq Clearing Sweden's and Nasdaq Oslo's commodities exchange and clearing businesses and Compagnie Financière Tradition's acquisition of MTS Markets International)
  • Vertical integration (e.g., London Stock Exchange's acquisition of Acadia)
  • Cross-border innovation consortia (e.g., Euronext's, Nasdaq's, SIX Group's and Deutsche Börse's (amongst others) collaboration to establish real-time consolidated and standardised source of EU equities market data tape)
  • Europe's financial tectonic plates reach for their cheque books to support digitalisation 
  • Market participants get behind "new age" financial market infrastructure (e.g., Bank of America's equity investment in OpenFin and BNP Paribas's equity investment in FIA Tech)

Key drivers/challenges

• Digitalisation coat of technicolour:
  • Risk management and regulatory compliance solutions (e.g., Nasdaq's acquisition of Adenza)
  • Investment management software solutions (e.g., Deutsche Börse's acquisition of SimCorp)
  • Enhanced trading technology (e.g., Tradeweb Market's acquisition of Yieldbroker)
  • Digital access to private markets (e.g., Euroclear's acquisition of Goji)
• Europe's trading venues opt for the 'try before you buy' model:
  • For international expansion (e.g., Nasdaq's trading system partnership with Stock Exchange of Thailand)
  • For selecting tech partners (e.g., London Stock Exchange Group's data analytics distribution partnership with OpenFin, account verification partnership with Mastercard and institutional-grade digital asset derivatives partnership with GFO-X)
• Cashing-out of liquid FMI stakes by:
  • Financial sponsors (e.g., Blackstone's, CPPIB's, GIC's and Thomson Reuters' disposal of 5.1% of London Stock Exchange and PIF's disposal of 10% of Saudi Tadawul)
  • Trading venues themselves (e.g., Australian Securities Exchange's disposal of 43% of Yieldbroker)
• Push beyond 'pure play' trading into data, analytics and technology services:
  • Building vertically integrated platforms
  • Providing customers with access to alternative capital
  • Increasing share of non-trading revenue and decreasing earnings volatility

Trends to watch

• Cautious approach to integration of new technology (e.g., SIX Swiss Exchange's worst trading outage for >10 years in June 2023 and Depository Trust & Clearing Corporation's suspension of Investor Kinetics data service)
• Increasing regulatory scrutiny of market outages (e.g., ESMA's May 2023 recommendations for trading venues and UK FCA's taskforce to manage outages)

Our M&A forecast

M&A to achieve scale remains moderately high, notwithstanding dearth of IPOs in the wake of the Russia/Ukraine confict and Silicon Valley Bank/Credit Suisse rescues. Trading venues to deploy an orchestra of acquisition and partnership strategies.

Other financial services—Publicly reported deals & situations

FMI international expansion

Acquisitions:

• LCH Group Holdings (Clearing): Acquisition of 11.1% of LCH (June 2023)
• European Energy Exchange (Commodities clearing): Acquisition of Nasdaq Clearing Sweden's and Nasdaq Oslo's commodities exchange and clearing businesses (June 2023)
• Compagnie Financière Tradition (Credit trading): Acquisition of MTS Markets International (December 2022)

Partnerships:

• Nasdaq (Stock exchange): Trading system, market data distribution and market surveillance JV with Stock Exchange of Thailand (May 2023)
• Saudi Tadawul Group (Cross-listing): Fintech, ESG and cross-listings JV with Hong Kong Exchanges and Clearing (February 2023)

FMI vertical integration

• London Stock Exchange (Post-trade services): Acquisition of Acadia (December 2022)

FMI digital expansion

Acquisitions:

• London Stock Exchange /LCH Group (Equities clearing): Acquisition of Euronext's 11.1% stake in LCH France (June 2023)
• Nasdaq (RegTech): Acquisition of Adenza (June 2023)
• Deutsche Börse (Investment management software solutions): Acquisition of SimCorp (April 2023)
• Tradeweb Markets (Trading platform): Acquisition of Yieldbroker (April 2023
• Euroclear (Private fund digital platform): Acquisition of Goji (December 2022)
• London Stock Exchange (Risk management): Acquisition of Acadia (December 2022)
• Warsaw Stock Exchange (Stock exchange): Acquisition of 65.03% of Armenia Securities Exchange (December 2022)

Partnerships:

• Barclays (Digitalisation): Digitalisation journey and cloud adoption JV with London Stock Exchange (May 2023)
• FIA Tech (Data analytics): Capital markets data query JV with Symphony (May 2023)
• London Stock Exchange (Data analytics distribution): LSEG Workspace platform JV with OpenFin (May 2023)
• Zodia Custody and LMAX Digital (Digital assets): Trading infrastructure and custody services JV with CoinShares (May 2023)
• MarketAxess (Data analytics): Fixed-income consolidated tape JV with Bloomberg and Tradeweb (May 2023)
• MarketAxess (Data analytics): 'Investortools Dealer Network' JV with Investortools (May 2023)
• Euroclear (Digital ID verification): Digital ID verification JV with Tradeweb and Informa Global Markets (April 2023)
• LCH (Digital asset trading venue): Launch of centrally cleared trading venue for institutional-grade digital asset derivatives, in partnership with GFO-X (April 2023)
• London Stock Exchange/Giact (RegTech): Account verification JV with Mastercard (March 2023)
• Deutsche Börse (Digital marketplace): Digital private market infrastructure and market data JV with Forge Global (September 2022)

Innovation consortia

• Hong Kong Exchanges and Clearing Market: Expansion of Shanghai-Hong Kong Stock Connect programme to exchange-traded funds (June 2022)
• Goldman Sachs, Cboe and Digital Asset: 'Canton Network' joint development programme (May 2023)
• Euronext, Nasdaq, SIX Group, Deutsche Börse and ten other European exchanges: Collaboration to establish real-time consolidated and standardised source of EU equities market data tape (February 2023)

Growth of 'new age' FMI

• FIA Tech (Data analytics): Successful US$25.4 million funding round led by BNP Paribas (June 2023)
• OpenFin (Automation): Successful US$35 million Series D funding round led by Bank of America (May 2023) 
• AirCarbon Exchange (Carbon credit trading): 20% equity investment from Mubadala (November 2022)

Offloading of ‘liquid' FMI stakes

Financial sponsors:

• Blackstone, Canada Pension Plan Investment Board, GIC Special Investments and Thomson Reuters (Stock exchange): Disposal of 5.1% of London Stock Exchange (March 2023)
• Sovcombank (Stock exchange): Disposal of stake in SPB Exchange (November 2022)
• Saudi Public Investment Fund (Stock exchange): Disposal of 10% of Saudi Tadawul (November 2022)

FMI businesses:

• Euronext (Clearing): Disposal of 11.1% of LCH (June 2023)
• Australian Securities Exchange (Brokerage): Disposal of 43% of Yieldbroker (April 2023)

Private equity dips a toe in

• 7RIDGE (Financial benchmark): Acquisition of American Financial Exchange /AMERIBOR (April 2023)

Organic growth

• Egyptian Exchange: Launch of futures clearing and settlement offering, Tasweyat Clearing Services Company (June 2023)
• Euronext: Migration of Borsa Italiana's equities and ETF businesses to Optiq (April 2023)

Regulator scrutiny

• European Securities and Markets Authority: Publication of recommendations for trading venues in the event of a market outage (May 2023)
• UK Financial Conduct Authority: Establishment of taskforce on 'good practices' in relation to conduct during an outage (May 2023) 

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2023 White & Case LLP}