London Stock Exchange’s acquisition of Refinitiv
By: Alina Hassan, James Kong, Nicholas Yiassoumis, Noah Wehn, Omar Ali
In January 2021, the London Stock Exchange Group plc (“LSEG”) officially acquired Refinitiv, a US-based financial data provider. The deal, which was an all-share undertaking, amounted to US$27 billion. The two parties initially announced the deal in July 2019, marking an important milestone in LSEG’s history. Although the deal’s progress was impeded due to the European financial market regulator’s antitrust concerns, the parties managed to receive the green light on the 13th of January 2021. LSEG’s consolidation with Refinitiv puts them in a position to be a global leader in financial data and market infrastructure provider, creating a stronger competitor to financial data leader Bloomberg LP.
Company Details: London Stock Exchange Group plc
London Stock Exchange Group plc (LSEG:LSE) is a global financial markets infrastructure and data analytics provider. It has three main lines of business: Data Analytics, Capital Markets and Post Trade. Its acquisition of Refinitiv primarily bolsters its Data Analytics services; in combination with FTSE Russell, LSEG is an industry leader in data analysis, indexing and benchmarking capabilities.
Headquarters: London, United Kingdom
CEO: David A. Schwimmer (since 2018)
Number of employees: 4,965
EV: £33.94 billion
LTM Revenue: £2.41 billion
LTM EBITDA: £1.1 billion
LTM EV/Revenue: 14.09x
LTM EV/EBITDA: 30.74x
Advisors: Goldman Sachs, Morgan Stanley, Robey Warshaw, Barclays, RBC
Company Details: Refinitiv
Refinitiv is a global financial markets data and infrastructure provider. Through its financial information, market insights and technology services, Refinitiv facilitates its customers’ investing, trading and risk management decision-making. It possesses a large product range providing wide industry coverage such as Eikon, a software system (similar to the Bloomberg Terminal) used by professionals to gain access to exclusive market data and analytics, Reuters news and messaging tools.
Headquarters: London, United Kingdom
CEO: David W. Craig (since 2018)
Number of employees: 19000+
EV: $27 billion
LTM Revenue: $6.25 billion
LTM EBITDA: n.d.
LTM EV/Revenue: 4.32x
LTM EV/EBITDA: n.d.
Advisors: Evercore, Canson Capital Partners, Jefferies
In terms of the financial highlights, LSE has targeted a revenue compound annual growth rate (CAGR) of 5%-7% over the first three years following the completion of the deal, achieved through growth drivers across both businesses and targeted annual revenue synergies of £225mn by the end of the fifth year. The combined business also has increased recurring revenue from around 40% to 70%, targeted annual cost synergies of £350mn by the end of the fifth year following the deal and significant potential benefits from refinancing Refinitiv's existing debt.
Furthermore, following the announcement of the deal in July 2019, LSE shares rose ~20% in a matter of days and have continued to climb as investors anticipate enhanced returns with expected adjusted earnings per share accretion of over 30% in the first year, increasing in years two and three following the completion of the transaction.
Finally, the combined business will be chaired by Don Robert, LSE's Chairman, while David Craig will join LSE's Executive Committee and continue as Chief Executive Officer of Refinitiv. The transaction will result in the Refinitiv shareholders acquiring approximately 37% economic interest and 29% voting interest in LSE with Martin Brand, Erin Brown and Douglas M. Steenland being appointed to the LSE board.
LSE's main markets are the United Kingdom, Europe and the USA, whereas Refinitiv's core markets are Asia, emerging markets and the USA. Therefore, the acquisition of Refinitiv will further strengthen LSE's global footprint and give the combined company access to markets with high growth rates. LSE's revenue outside of the UK was 61% in 2018 but combined it would increase to 77% in the same year.
In addition to the geographic diversification, the deal would also benefit LSE's global multi-asset trading and execution venues by adding leading FX trading and execution capabilities. Moreover, the combined company would be well-positioned in the fixed income market.
Refinitiv's core competence lies in its multi-asset class data content, management and solution capabilities. This will help LSE to improve its services and to stay competitive in a technology-driven industry. Furthermore, Refinitiv has a contract with Reuters, which will give the combined company access to critical financial data and news for the next three decades.
To conclude, the key long term impacts on LSE are that the company will increase its geographic diversification, product portfolio and further extend its role as a major player along the financial markets value chain. The acquisition will unleash innovation in the main business areas and provide access to data management capabilities and technologies that will play an increasingly important role in the finance industry's future.
Risks and uncertainties
Along with issuing $14.5 billion of new shares to fund the deal, LSE will also take on Refinitiv’s substantial net debt of $12.5 billion. The combined entity’s debt-to-EV ratio will be increased to 25% as opposed to 10% for LSE prior to the transaction. A syndicated bridge loan will be used to refinance $13.5bn of leveraged loans and bonds that backed the US$20bn purchase of a majority stake in Refinitiv in October 2018 by a consortium led by US private equity firm Blackstone. The bridge loan reflected LSE's investment-grade credit rating at the time of issuance. A further consequence of the newly increased debt repayment burden placed on LSE means that the opportunities utilising capital to sustain future growth are significantly reduced, in addition to capital, which could have otherwise been returned to shareholders will be reprioritised.
Earlier in January, EU regulators approved LSE’s Refinitiv which although removed the last major obstacle to the deal, did not come without compromise. The merger came under fierce scrutiny from European authorities over concerns it would give LSE too much control over market data, allowing it to give preferential treatment to customers or block out rivals completely. They also cited worries about the impact on areas such as clearing and derivatives trading. LSE pledged to grant non-discriminatory access to competitors. The exchange also said that its €4.3bn sale of Borsa Italiana, the owner of the Milan stock exchange and a major trading platform in European sovereign debt, to pan-European exchange Euronext would contribute significantly to addressing competition concerns. The concessions meant “the markets will remain open and competitive and the acquisition will not lead to higher prices or less choice,” said Margrethe Vestager, the Executive Vice-President in charge of competition at the European Commission.
LSE’s competitors will no doubt remain vigilant and strive as well to obtain greater market share in the data-provision sector. Recently, S&P Global announced the $44 billion mega-acquisition of IHS Markit which cements S&P Global's spot as the third-largest global market data provider behind Bloomberg LP and Refinitiv, which each represented a respective 32.8% and 21.4% of the market in 2019. There is no doubt the success of the Refinitiv’s acquisition by LSE is contingent on successful integration, and continuously evolving to keep up with consumer demands and technological advances.