I think it is fair to say that the London Stock Exchange Group was the dark horse in the chase to buy Refinitiv, after all, LSEG has a long and no-so-proud history when it comes to M&A – over the years it has been mentioned as a buyer of Icap, NEX Group and Deutsche Borse, none of which came off (nor did an ICE bid for LSEG), indeed the only really big deal that succeeded was the merger with LCH.
The company has though, bid $27 billion for Refinitiv, this includes $12 billion and change in debt, and while the proposed deal is very much about data, there will inevitably be an impact on the FX industry as it will include the trading platforms that Deutsche Borse bid for in April.
The first thought on the deal is that Blackstone has had a very good day – the firm is likely to double its money on the initial investment – but there are other strong motives for getting this deal done on that firm’s part. Galen Stops and I noted in a podcast a few weeks ago that the chatter around the Deutsche Borse/Refinitv deal had cooled down, the word was that talks were still ongoing but the deal wasn’t going to be as easy as first thought.
For one thing, and this is something I have long banged on about in these columns, could Deutsche Borse afford to buy FXall and Matching? News reports continually spoke of it buying FXall only, which to me was ridiculous – the primary market CLOB they wanted would not be part of the deal? It makes no sense. The problem as it was explained to me was that buying both (and there was also chatter about the RET business being included) suddenly put pressure on the financial position of the German exchange in the form of the amount of debt it would have to take on. My sources told me that would not be a deal-killer, just that it would take more time to construct it.
The beauty of the LSEG proposed deal for the Blackstone-led consortium is that not only will it make a shedload of money, but it will not have to worry about the complexities of post-break up relationships. Again my sources told me that the problem for the Deutsche Borse deal was what would happen to the data piece – would a deal have to be put in place to provide access to the data on a long term basis, similar to the one signed between Refinitiv and Thomson Reuters for the news feeds?
Either way, it is clear that the price put upon Refinitv by LSEG has seen Deutsche Borse exit stage left, the company issued a statement over the weekend which said, “The Executive Board of Deutsche Börse AG has concluded, following today’s statement by London Stock Exchange Group plc confirming discussions about a possible acquisition of Refinitiv Holdings Ltd, that it does not expect Deutsche Börse AG’s discussions with Refinitiv on a potential purchase of certain FX business units to be successfully completed.”
For LSEG and indeed Refinitiv, the deal offers some enticing opportunities – the first being Refinitv would have the scale and resources to mount a serious challenge to Bloomberg in the broad financial markets business. A second allure for the deal would be that LSEG’s data business would be buying a giant in the FX space especially, an area in which the exchange group has historically not been heavily involved. Thirdly, LSEG would suddenly have the size and reach to take on its major competitors such as ICE.
It is hard not to see this mega-deal as a good one for all concerned, however I have to offer two notes of caution. The first is the level of debt that LSEG is taking on – this was an issue for Deutsche Borse and is likely to be for the UK group. The second may not be an urgent issue but it is a whisper I am picking up on in the industry over data. Put simply, as more markets seek to limit the advantage of speed through latency floors and speed bumps, there is a sense that the clamour for data could ease – we have reached a stage in trading where fast enough is good enough, could the same happen in data? Several senior figures in the FX industry in both the bank and non-bank segment have told me in recent weeks that the cost of accessing high speed data is fast approaching the point at which it definitively does not add value.
Could then, LSEG be buying into the data business at or near the top? The same question was probably asked of Blackstone last year and we have the answer to that today, so probably not. For even though there may be a push back against very high frequency data services, trading businesses the world over will still need data in some form, thus Refinitv would remain a high-value business.
Of interest to me would be what will this mean for the FX trading platforms of Refinitiv? A deal with Deutsche Borse would inevitably have led to departures at all levels of the firm – there were simply too many areas in which they competed directly. LSEG, on the other hand, brings nothing FX to the party beyond LCH’s ForexClear (and there should be very good opportunities for that business in a direct link up with FXall and, potentially Matching), thus the Refinitiv FX businesses will remain relatively untouched.
There are some who will find this a bad thing, who believe the Matching and FXall businesses could do with a shake up, but there are times when continuity is a really good thing – especially versus the “change for change’s sake” business model. An LSEG deal for Refinitiv would appear to offer the latter all the benefits of being part of an exchange group, whist allowing it to retain its own identity and business lines.
One final question for this will be what happens at Deutsche Borse? Matching was largely seen as the last juicy plum on the table when it comes to FX platforms, although one cannot rule out State Street being willing to rid itself of what is sometimes seen as an awkward business for a bank to own in Currenex.
It could be that Deutsche Borse now looks to seriously beef up its technology and resource spend on GTX to make that platform the serious CLOB it wants. Equally it may decide that the spot business is no longer a priority and prefer to focus on catching the really big fish still in the water in FX swaps. Either way the future of Refinitiv now looks, subject to another left-field obstacle involving an LSEG takeover, to be in that company’s portfolio. Is that a good thing? Time will tell, but the only people who could really look back upon this in five years’ time with displeasure if it goes wrong are the buyers.