London Stock Exchange Deal May Spark Industry Buyout Frenzy

  • Smaller firms join FactSet, MSCI on potential shopping lists
  • Shrinking market share may pressure firms to seek deals

The more than $30 billion of buyouts among companies at the heart of global financial markets have in the past six months turned little-known data firms into some of the industry’s hottest takeover targets.

Deutsche Boerse’s $13.8 billion proposed buyout of London Stock Exchange Group Plc would be among the biggest in the industry’s history, sweeping into play information-service companies that might also tempt the exchanges. Those smaller deals have already racked up more than $10 billion.

The market structure industry -- suppliers of the electronic plumbing behind financial markets -- could be ripe for yet even more mergers. Analytics firm FactSet Research Systems Inc. and more-than-40-year-old index company MSCI Inc. are also among potential targets that have been discussed among investment bankers. Once a major asset is a target, chief executive officers may feel that it’s now or never to pounce, said Warwick Business School professor John Colley.

“Once it starts consolidating, it just keeps rolling,” said Colley, associate dean who runs the business masters program at the British university. “It kind of puts everyone in play. You know everyone else is looking to buy.”

Data in Demand

Market-research company Markit Ltd. and bond-pricing service Interactive Data Holdings Corp. may not be as recognizable as the London Stock Exchange, an institution harking back to a 17th century coffee house. But they’re in high demand -- helping to lubricate buying and selling in harder-to-value assets, like swaps or corporate bonds. Exchange-traded products like stocks, meanwhile, have become less lucrative amid relentless competition.

Bloomberg LP, the owner of Bloomberg News, also provides data and analytic services for the financial industry.

The data company deals have highlighted Argus Media Ltd., another information company. The energy-market data provider said in November that it’s time for the company to “transition from a privately-owned family business.” Several private-equity firms are considering placing bids, which are due May 9, according to two people familiar with the discussions.

Among possible acquisition targets is Alerian Capital Management. The manager of indexes tracking energy and infrastructure companies is said to have explored a possible sale in the past. The world’s biggest banks also operate indexes for bonds and other assets that could eventually be on the block.

ICAP Plc may become an appealing buyout target once it sells its voice-brokerage business to Tullett Prebon Plc, according to analysts at Numis. The transaction could be completed by September. ICAP CEO Michael Spencer wants to focus his company on electronic markets and post-trade services.

The publicly-listed data companies may just be the tip of the iceberg. By some estimates, at least 30 or more financial technology startups provide similar services.

Industry Heavyweights

Then there are the industry heavyweights: Intercontinental Exchange Inc. CEO and serial dealmaker Jeff Sprecher has been a major force behind exchange consolidation, spending more than $5 billion on Interactive Data in December and now considering a bid for the London exchange. Should he win, Sprecher has hashed out plans to spin off LSE’s Milan unit and continental Europe clearing operations, people familiar with the discussions have said.

Those potentially hived-off pieces have caught the attention of other CEOs.

Nasdaq Inc. CEO Bob Greifeld is said to be looking for more, even as the company digests five acquisitions it made in the past six months, according to people familiar with the discussions. The exchange operator hired boutique investment bank PJT Partners Inc. to examine any spinoffs from an LSE deal. Paris-based Euronext NV is said to be eyeing possibilities as well.

Representatives for Nasdaq, Euronext and Argus declined to comment. Spokesmen for FactSet, MSCI, ICAP and Alerian didn’t reply to requests for comment.

The biggest of these companies are beginning to resemble financial conglomerates -- not unlike those in the merger-heavy industries of beer and pharmaceuticals. With fewer firms competing for the same market share, smaller exchanges including Spanish stock exchange Bolsas y Mercados Espanoles SA may feel they have little choice but to seek deals.

Snags, Failures

The buyout activity hasn’t gone unnoticed among regulators. And if this week’s snags and all-out failures in planned mergers are anything to go by, more hurdles may lie ahead. By one measure, LSE and Deutsche Boerse would operate the biggest clearing business in the world, at a time when some worry clearinghouses are becoming too big to fail. The combined group would be the biggest European stock market and would rake in more profit than any other exchange company.

Still, once a buying spree starts, it’s hard to go back, says Caldwell Securities Ltd.’s Thomas Caldwell.

“The second you go into a deal, you’re going to attract other folks,” said Caldwell, CEO of Caldwell, a money management firm in Toronto. “You don’t go into a takeover or merger of any kind without the prior understanding that someone is going to come and try to top you. It’s just the order of things.”

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