Euronext Seeks Takeover Targets Amid Goliath Rival Tie-UpBy
Euronext CEO Boujnah is intent on acquiring Clearnet
Company may have few other targets if deal doesn’t succeed
Pan-European market operator Euronext NV, faced with losing ground to bigger rivals, is intent on transforming the company.
Plan A: Purchase London Stock Exchange Group Plc’s French clearinghouse, which has already been agreed upon as an antitrust concession in the U.K. company’s merger. And if that mega-deal falls apart, and LSE no longer has to sell the French business? Plan B: Try to buy it anyway.
Euronext Chief Executive Officer Stephane Boujnah is a former investment banker and says he’s looking to reshape the company via acquisition. The terms of his 510 million euro ($543 million) agreement to buy a clearinghouse depends on whether or not LSE and Deutsche Boerse AG succeed in creating the biggest exchange company in Europe.
“We are trying to strengthen Euronext irrespective of the merger,” Boujnah said of his planned purchase of LCH.Clearnet SA in an interview in Amsterdam. “We will be a willing buyer in an any event.”
As Boujnah sees it, Euronext used to own Clearnet -- which handles clearing in stocks, fixed-income, listed-derivatives and credit default swaps -- and the two companies operate in similar geographies. Euronext still accounts for about 50 percent of the clearinghouse’s revenue as its biggest customer, making the exchange the natural buyer.
While profits from running trading platforms have in some cases evaporated, clearinghouses are still money makers. Their job is to hold collateral and monitor risks to prevent a derivatives default from spinning out of control. The biggest exchange operators have them, but currently Euronext doesn’t.
Euronext was part of a much bigger empire when acquired by Atlanta-based Intercontinental Exchange Inc. in 2013. It was eventually spun out, and now it’s smaller than regional rivals like LSE and Deutsche Boerse, as well as giants in the U.S. and Asia.
Whether or not LSE would be a willing seller is yet to be determined. A spokesman for LSE declined to comment on the matter. European Union competition watchdogs are due to decide by April 3 on whether to allow Deutsche Boerse’s takeover of LSE, which will be industry defining if it succeeds.
Boujnah has been running Euronext -- which operates markets in France, the Netherlands, Belgium and Portugal -- since 2015. Prior to that he was a dealmaker, with stints at Banco Santander SA and Deutsche Bank AG.
He says even if the company succeeds in buying Clearnet, it might not be the end of Euronext’s spree. The market operator is looking for a “transformational” deal, signaling it could try to move into new geographies or asset classes. A large Euronext purchase would add to a relative tidal wave for the sector. Companies that underpin the world’s most important markets were behind more than $20 billion of deals last year.
Euronext plans to spend as much as 150 million euros on capital expenditures, but Boujnah says it can buy even larger assets because it can leverage the company’s balance sheet. The firm has about 175 million euros of cash, according to its annual report, and earnings before interest, taxes, depreciation and amortization, or EBITDA, of 284 million euros.
The problem for Euronext could be that there are few obvious targets for the exchange company, according to Peter Lenardos, an analyst at RBC Capital Markets in London. The company has substantial balance sheet muscle, he said, and management will be under pressure to use it if the clearinghouse deal falls through.
While the wave of buyouts has trimmed Euronext’s options, one company that’s roughly similar in size is Bolsas & Mercados Espanoles, operator of the Spanish stock exchange. Boujnah said he’s more focused on deals in Europe, but opportunities to reshape the company are on both sides of the Atlantic and can’t be ruled out.
"The core focus for Euronext is Europe and that’s not going to change," Boujnah said. Still, “we don’t intend to sit on this pile of cash” if we find opportunities, he said.