Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus
Overview
Current market
We are seeing
- European juggernauts thunder the M&A plains—differing prerogatives:
- Horizontal growth (e.g., Euronext's acquisition of Borsa Italiana, WSE's acquisition of controlling stake in AMX, etc.)
- Vertical integration (e.g., Deutsche Börse's acquisition of majority equity interest in Institutional Shareholder Services)
- Transatlantic reach (e.g., Deutsche Börse's acquisition of majority equity interest in Quantitative Brokers)
- New world securities (e.g., SIX's acquisition of majority equity interest in Custodigit)
- Cashing out of 'liquid' investments:
- Sovereign wealth funds (e.g., Türkiye Varlık Fonu's disposal of 10% of Borsa İstanbul)
- Asset managers (e.g., First Investment Co.'s disposal of 14.407% of Boursa Kuwait
Key drivers/challenges
- Regulators and politicians intervene in deal-making:
- Competition authorities make a stand against market foreclosure risks (e.g., LSE's disposal of Borsa Italiana)
- Central banks encourage diversification of ownership of critical market utilities
- Local governments reserve ownership of domestic core infrastructure businesses (e.g., Italian government's extension of CONSOB's veto powers in respect of direct/indirect sales/ purchases of ≥10% stakes in Borsa Italiana)
- Key utility players:
- Engage in opportunistic M&A (e.g., availability of Borsa Italiana on account of LSE’s desire to secure EU antitrust approval for acquisition of Refinitiv)
- Focus M&A firepower on verticals less likely to attract antitrust scrutiny (e.g., trade reporting, proxy advisory, digital asset custody, etc.)
Trends to watch
- Banks seeking to offload 'liquid' financial market infrastructure stakes as the risk of the COVID-19 pandemic precipitating a credit crunch intensifies
- Financial sponsors openly taking issue with interventionist approach of local European governments
- UK seeking to encourage London listings by businesses of all sizes, post-expiry of Brexit transition period (i.e., revival of AQSE market aimed at micro-cap companies)
Our M&A forecast
Competition for prized financial utilities to remain high despite the longer-than-originally-anticipated effects of the COVID-19 pandemic (e.g., Deutsche Börse, Cassa Depositi e Prestiti and Intesa Sanpaolo's rumoured competing bids for Borsa Italiana).
Other financial services—Publicly reported deals & situations
Inorganic growth
Deal highlight:
White & Case represented the Qatar Investment Authority, the sovereign wealth fund of the State of Qatar, on its US$200 million acquisition of a 10% stake in Borsa İstanbul, the primary stock exchange operator in Turkey, from the Turkey Wealth Fund, the sovereign wealth fund of the Republic of Turkey.
- Moscow Exchange (Kazakhstan): Acquisition of 13.1% of Kazakhstan Stock Exchange (December 2020)
- Euronext (Italy): Acquisition of Borsa Italiana (October 2020)
- Cboe Global Markets (Clearing): Acquisition of European Central Counterparty (July 2020)
- SGX (Cloud-based institutional trading platform): Acquisition of remaining 80% of BidFX (June 2020)
Swapping horizontal for vertical reach
- SIX (Switzerland): Acquisition of majority equity interest in Custodigit (December 2020)
- MarketAxess (Germany): Acquisition of Deutsche Börse's Regulatory Reporting Hub (December 2020)
International expansion
- Deutsche Börse (Proxy advisory): Acquisition of 80% of Institutional Shareholder Services (November 2020)
- Warsaw Stock Exchange (Armenia): Acquisition of 65% of Armenia Securities Exchange (September 2020)
- Deutsche Börse (US): Acquisition of majority stake of Quantitative Brokers (September 2020)
Offloading of 'liquid' stakes
- Turkey Wealth Fund: Disposal of 10% of Borsa İstanbul (December 2020)
- Deutsche Börse: Disposal of Regulatory Reporting Hub (December 2020)
- London Stock Exchange (Italy): Disposal of Borsa Italiana (October 2020)
- First Investment Co.: Disposal of 14.407% of Boursa Kuwait (July 2020)
Click here to download 'Financial services M&A stages a herculean comeback in H2 2020, finishing the year on a high' PDF.
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