The global M&A activities for the stock exchange industry started back in 2006, it was then disrupted by the global financial recession.
The fever has come back with a series of announcements, some were unsuccessful evidenced by the Singapore Exchange’s proposal on Australian Securities Exchange, some are ongoing such as the NYSE Euronext ‘” Deutscth Borse; and the two proposals to merge/acquire the TMX Group.
For investors seeking M&A activities, this is a perfect opportunity to include stock exchanges in their portfolio, both for potential short-term gains; and also for long term growth in these companies.
Why Stock Exchanges are unique businesses?
Stock Exchanges are unique businesses, and they often have large market share; and in many instances, they are also considered as national interest. The latter is the main reason why many acquisitions do not eventuate in the end; often due to the political consideration instead of financial consideration.
Apart from the United States, most countries only have one dominant stock exchange, but with smaller stock exchanges for specific sectors. The stock exchanges are also strong businesses; often operating at very high profit margin. Revenue is based on trading volume, both buy & sell side; as well as listing fees which are required on the annual basis for listed companies; also from IPO activities; as well as trading financial derivatives (options, warrants) and settlement fees.
Their unique nature also make them as unique investments; and indeed, most of the stock exchanges are amongst the top listed companies; and they are often important company to include in mutual funds.
Below is the list of recent transactions:
· 2011 ‘” NYSE-Euronext and Deutsche Borse in discussion of merging the operations.
· 2011 ‘” London Stock Exchange announced its merger intention with TMX Group, the owner of Toronto Stock Exchange. Later on, Canadian banks and pension groups formed a new consortium to counter-bid this proposal ‘” the deal is still in discussion.
· 2010 – The Singapore Exchange made a bid to purchase ASX Ltd, which runs the Australian stock market, for $8.3 billion. The deal was rejected on the ground of national interest.
· 2008 – BovespaHolding SA, which runs the Sao Paulo Stock Exchange, merged with Brazil’s main derivatives market BM&F in a $10.3 billion deal.
· 2007 – This was an active year. NASDAQ purchased Sweden’s OMX AB for $4.1-billion. OMX bought Dubai International Finance Centre for $3.4 billion. NYMEX Holdings was taken over by CME Group Inc. in a deal worth $7.56 billion. NYSE joined investors to buy a 20 percent stake of the India National Stock Exchange for $460 million. And International Securities Exchange Holdings Inc. was purchased by Eurex AG for $2.8 billion.
· 2006 – This was the start of a frenzy in mergers and acquisitions among stock and exchange markets. The Chicago Mercantile Exchange acquired CBOT Holdings Inc. for $11.1 billion. NYSE Group Inc. paid $10.2 billion for Euronext NV in 2006. That same year NYSE also purchased Archipelago Holdings for $2.26-billion to get into electronic trading. And NASDAQ buys a 15 percent stake in the London Stock Exchange.
In terms of trading ideas, the following are the major listed stock exchanges that are likely to undergo potential M&A activities:
1. Australian Securities Exchange: The main stock exchange for Australia. As we know, Singapore Exchange had approached it previously, and it is likely other companies may have another attempt on ASX. ASX has a unique position in Australia, and also in the mining sector. However, any such attempt is unlikely for majority holdings, it is more likely as a strategic investor.
2. CME Group Inc ‘” Now one of the world’s largest listed stock exchange, commonly known as Chicago Mutual Exchange. It is the world’s largest exchange for options, derivatives and commodities. The company has benefited significantly from surging interest in commodities trading such as gold, oil and agriculture products; which has also helped its company share price. CME Group is likely to acquire other stock exchanges, possibly in Asia or Latin American to expand its presence.
3. NYSE Euronext ‘” The world’s most known stock exchange. Followed by the NYSE-Euronext merger, this group has the most companies listed combining both American and European companies. The current discussion with Duetsche Borse is on-going, it is also likely that it will invest in other stock exchanges as strategic investor.
4. Singapore Stock Exchange ‘” Singapore Stock Exchange has been trying to expand its influence in Asia, which is why it attempted to merge with ASX. In Asia, it competes with Hong Kong Stock Exchange for listing, particularly those from China. The company is affiliated with Singaporean Government, which means it is able to leverage this strong financial support for expansion. The only way for SGX to expand is through acquisitions; and it is likely it will make attempts to acquire stakes in India or Australian stock exchanges in future.
5. Nasdaq Group ‘” Known for its concentration of technology and other growth companies. Nasdaq Group also owns a number of other stock exchanges, notably OMX and Dubai International Exchange. The company has a history of aggressive growth through acquisition; it is likely it will seek to make other acquisitions in the medium term.
6. Hong Kong Stock Exchange: HKSE has unique market position being Hong Kong’s major stock exchange, and also the main-board for Chinese companies. It is one of Asia’s major stock exchanges, as the 2nd most active stock exchange in Asia, just behind Tokyo. HKSE is one of the top stock exchanges by market capitalization; there were speculations in the past about merging with one of the major American stock exchanges. Any attempt is likely to face stringent regulatory reviews.
7. London Stock Exchange: The world’s 4th largest stock exchange, it is also actively looking for acquisition opportunities. LSE went through several changes last few years, and is now in discussion with Canada’s TMX Group. LSE is a powerful financial group; any merger with LSE will make the new entity into one of the world’s largest 3 stock exchanges.
8. Bolsas y Mercados Espa±oles: Spain’s stock exchange, and it is one of the few independent stock exchanges in Europe that operates separately from Euronext. It is also a common stock exchange for Latin American companies; which have preference to list them in this exchange instead of their local exchange in order to access to international capital markets. Spain’s economy remains weak, and it is like this could become a takeover target in the medium term.
9. TMX Group: TMX Group which owns multiple stock exchanges in Canada including the Toronto Stock Exchange, the country’s largest stock exchange. Toronto Stock Exchange is the world’s 6th most active stock exchange in the world. It is currently in discussion with London Stock Exchange and the Maple Group, a consortium led by Canadian banks and pension funds which wish to keep the group as “Canadian owned”.
Whatever the outcome is, it is the talk of 2011 at moment, and a deal is likely to reach within next 2 months. TMX Group is a unique group with the world’s largest number of listed companies in the mining, oil and gas sectors.
10. BM&F Bovespa: Brazil’s stock exchange and is the largest stock exchange in the world in terms of the market capitalization. As one of the fastest growing economies in the world, the future for Bovespa is very bright, with more and more companies applying for listing in Brazil. It has many plans to implement including expanding into more financial derivatives; and strategic partnerships with other stock exchanges.
11. Deutsche Borse: Germany’s largest stock exchange, and it is a highly influential stock exchange in Central Europe. It is also the largest stock exchange in German speaking financial markets; as well as hosting many Russian and Eastern European companies. There have been ongoing discussions with NYSE-Euronext regarding the merger, it is also seeking to expand its influence beyond Europe, especially into Asia and Latin American markets.
12. New Zealand Stock Exchange: NZSE is a small stock-exchange in global standard, but nevertheless an important stock exchange. Over the years, there were speculations that it may merge with ASX or one of the Asian stock exchanges, but nothing had happened yet. The most likely case will be merging with ASX, however, a large number of New Zealand companies are already trading on ASX, which means less synergies for this case.