2020 has been a wild year for exchange M&A. More than $80 billion of exchange deals have been announced or closed this year. 2021 holds just as much promise for consolidation. A thread on my 2021 exchange M&A predictions:
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First, the playing field. Potential M&A targets & acquirers in 2021: TMX ($6B market cap) CBOE ($10B) FactSet ($13B) MSCI ($35B) MarketAxess ($21B) Bloomberg (~$75B) Deutsche Borse ($30B)
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There are two types of exchange M&A - bolt on deals and transformative deals. Bolt on deals are smaller buys to add features to an existing platform. Transformative deals upend industry dynamics and a company's narrative.pic.twitter.com/XiOQlHi6P3
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The market likes transformative deals when exchanges *diversify* - combining high margin transaction businesses with recurring subscription revenues. "Vertical integration" is also smiled upon - an exchange buying data distribution firms as an example.
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CBOE and FactSet stick out as likely M&A targets. Both are small enough to buy. Both are "one dimensional" - Mostly transaction or mostly subscription businesses. Both are un-loved because of their one-dimensionality.
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I think MSCI & Moody's could combine in the future. Two of their biggest competitors just merged in S&P & IHS, pairing ratings & analytics with a powerful index business. What's to prevent a merger to take them on?
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I could also see Deutsche Borse buying CBOE. DB1 has tried to get in on US equities in the past a-la failed NYSE bids, and CBOE's planned European expansion could be causing them to sweat. Only barrier would be anti-trust.
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What am I missing? Any other deals likely? Will dive into more detail in an upcoming Front Month post.https://frontmonth.substack.com/
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