ICE to Acquire IDC for $5.2 Billion, Expanding in Data Services

  • Data services is fastest-growing business at NYSE-Owner ICE
  • Analyst says IDC is a good fit for ICE's credit businesses

Intercontinental Exchange Inc. is expanding its data services business, the company’s fastest-growing source of revenue, with the $5.2 billion acquisition of Interactive Data Holdings Corp.

IDC, which filed to become a public company earlier this year, specializes in pricing corporate bonds. For the first half of the year, the firm earned 72 percent of its revenue, or $337.5 million, from its pricing and reference data segment, according to a company filing. ICE’s latest acquisition brings further resources to its data business that has already been expanded by the $350 million purchase of SuperDerivatives in October 2014. The company’s data fee segment grew 29 percent in the quarter ended in June compared with a year earlier, the biggest jump of any unit.

“The strategy is to provide data and information services to their customers,” said Rich Repetto, an analyst at Sandler O’Neill & Partners LP who covers Intercontinental, also known as ICE. Jeff Sprecher, chief executive officer of ICE, is “trying to provide extensive tools to financial institutions so they can price some of these over-the-counter products that aren’t easy to value.”

The collapse of fixed-income trading platform Bondcube after only three months earlier this year highlighted the value that a good pricing service can provide in the $8 trillion corporate bond market.

Corporate bonds change hands privately over the phone, via instant message or on a handful of electronic venues. Completed transactions are reported with a 15-minute delay, but many bonds don’t trade for weeks or months, leaving gaps in pricing that historically were filled by banks that had more market information at their command than their customers. On Bondcube, investors who found each other using the company’s system often couldn’t agree on a price, a person familiar with the matter said earlier this year.

ICE, which owns the New York Stock Exchange, will pay $3.65 billion in cash and $1.55 billion in its own shares to buy the firm from Silver Lake and Warburg Pincus, the private-equity investors that bought the business for $3.4 billion in 2010, according to a statement on Monday. The firms had considered an initial public offering for the business as recently as last month.

Including dividends they collected from IDC in 2012 and last year, the private equity firms and their co-investors will have made more than a 150 percent gain from the sale, a person with knowledge of the matter said. They originally invested $1.35 billion of equity in the 2010 buyout, according to an IDC bond prospectus.

ICE shares fell 0.6 percent to $247.39 in New York today.

IDC sells its pricing data to more than 5,000 customers that include asset managers, hedge funds, banks and insurance companies. The company’s “bread and butter” is the bond pricing where “a roomful of bond analysts” pore over securities information to complement their algorithmic models, said Kevin McPartland, a market structure analyst at Greenwich Associates.

That type of service could be a welcome addition to ICE’s business in clearing and trading credit-default swaps, McPartland said. “It’s logical that they’d want to add a data element around the edges of that,” he said. Bloomberg LP, the parent of Bloomberg News, provides pricing services and data for corporate bonds.

“With IDC as the cornerstone in the next phase of extending our services, we will build on our track record of solid execution on integration and innovation by focusing on the needs of our customers in the evolving data services marketplace,” Sprecher said in the statement.

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