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M&A in financial markets

Dealmakers focus on trading tech, digital assets, and post-trade solutions

18 February 2022

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Across the global financial markets industry, 2021 was another busy year for deals. Big capital raises from up-and-coming firms alongside some high-profile mergers tell the story of an evolving industry, with trends in trading technology and digital assets at the forefront.

MarketVoice estimates that there were roughly 40 mergers, acquisitions, joint ventures and other corporate transactions in the financial markets industry last year. That includes deals involving exchanges and other trading venues, brokers and trading firms, providers of market data and trading technology, and operators of market infrastructure for cryptocurrencies, government bonds and foreign exchange.

As in most years, there were a series of transactions that show legacy players continuing to grow and improve their business. There were no truly transformative deals, but a few noteworthy moves last year in this area included:

  • The London Stock Exchange Group agreed to acquire margin optimization company Quantile for roughly $360 million. Quantile is one of several fintech startups meeting demand for margin analytics to reduce capital requirements.
  • Tradeweb purchased a bond trading venue from Nasdaq for $190 million. The move significantly expands the reach of Tradeweb's Dealerweb platform and expands its presence in the cash Treasury markets.
  • The Singapore Exchange acquired direct-to-market FX trading platform, MaxxTrader for $125 million. Singapore is a key hub for currency trading in the Asia-Pacific region, and the move expands the exchange's foreign exchange presence.
  • CME Group and IHS Markit united several post-trade utilities into a joint venture called OSSTRA. It incorporates CME's Traiana, TriOptima, and Reset, all of which became part of CME through its acquisition of NEX Group in 2018, with IHS Markit's MarkitSERV to provide greater efficiency and integration in post-trade workflow for derivatives.

Looking beyond exchanges and trading venues, the two big trends were a surge of private equity investment in the trading technology sector and a flurry of deals in the crypto space.

Private equity ramps up investments in capital markets technology

While previous years saw big-ticket M&A activity among existing market participants, in 2021 we saw major deals involving consolidation across capital markets technology providers. In several cases, private equity firms bought into the sector to capitalize on the rapid adoption of new technologies such as cloud computing. In other cases, established technology vendors bought up-and-coming fintech companies to enhance their offerings.

One representative deal was the acquisition of software and data provider Trading Technologies, which was acquired by specialized growth equity firm 7RIDGE, which is headed by former UBS investment banker and Deutsche Boerse CEO Carsten Kengeter. The deal was funded in part by Cboe Global Markets and Singapore Exchange, which are among the limited partners in 7RIDGE.

Thoma Bravo, a private equity firm with more than $73 billion in assets under management as of late 2020, mashed up an existing investment in AxiomSL with the $3.8 billion acquisition of Calypso Technology, a California-based specialist in capital markets software. AxiomSL is a regulatory reporting and risk management solutions provider and Calypso is a cloud-based provider of solutions for trading, trade processing, risk management and accounting. Together, the combined company, now named Adenza, will offer a comprehensive end-to-end workflow platform for banks, broker dealers, asset managers and other financial institutions.

A similar story of consolidation and front-to-back efficiency comes with Broadridge buying Itiviti for €2.143 billion ($2.5 billion). Broadridge, one of the largest providers of technology for post-trade processing, said the acquisition would expand its footprint into the front office side of the business and build on its multi-asset potential. Itiviti provides trading and compliance solutions for around 2,000 customers in 50 countries. It was formed through the combination of Orc Group, an electronic trading technology provider, and CameronTec, a leader in financial messaging infrastructure and tools, in 2016. Itiviti later acquired Ullink, a global provider of multi-asset trading technology and infrastructure, in 2018.

Yet another transaction of this type was the merger of TradingScreen and Imagine Software, two financial technology vendors. Both companies were bought by Francisco Partners, a private equity firm with $25 billion in assets under management. In May Francisco Partners announced that the two companies were being merged into a single company offering an end-to-end trading and portfolio management software platform connecting investment managers with brokers, banks and exchanges. Francisco Partners also announced that it had recruited Rob Flatley to run the new company, renamed TS Imagine. Flatley, an expert on electronic trading technology, took charge of technology vendor Netik in 2010, grew the company through a series of acquisitions, and sold it to IHS Markit in 2015 for $200 million.

Other noteworthy deals that show a quest for efficiencies and synergy within market technology firms include:

  • Trading infrastructure provider Options Technology buying real-time data provider Activ Financial.
  • Market communications platform Symphony buying two fintech companies – voice and messaging communications firm Cloud9 and counterparty mapping platform StreetLinx.
  • Data and workflow software provider ION continuing its growth-through-acquisitions strategy, first buying options technology and execution provider DASH, then acquiring analytics and research firm Clarus Financial Technologies later in 2021.
  • Exegy merging with Vela Trading Systems and combined their solutions for electronic trading. The merger was orchestrated by Marlin Equity Partners, a California-based private equity firm that has completed more than 180 acquisitions since its inception in 2005.

Players new and old crowd into digital assets infrastructure

Cryptocurrencies, blockchain and digital assets were a hot area for dealmakers last year. One of the major trends was a scramble to buy a handful of small US exchanges that have regulatory approval to offer derivatives. Although none of these exchanges have large amounts of trading volume, they give their new owners a springboard for offering crypto futures through a fully licensed entity. These include:

  • Leading cryptocurrency exchange FTX acquiring LedgerX
  • Crypto.com, another large cryptocurrency exchange, buying two small futures exchanges from UK spread betting specialist IG Group
  • Cboe Global Markets purchasing ErisX from a consortium of investors

LedgerX and ErisX already had existing cryptocurrency derivatives contracts listed and duly regulated under the oversight of the U.S. Commodity Futures Trading Commission. LedgerX became the first regulated U.S. digital currency options exchange and clearinghouse in 2017. ErisX began to offer bitcoin future regulated by the CFTC in 2019 in addition to its previous offerings in spot crypto markets.

Outside the exchange sector, other deals show activity beyond just the desire for a direct foothold in the futures markets. For instance, Galaxy Digital, the investment banking and asset management firm headed by former hedge fund executive Mike Novogratz, paid $1.2 billion to buy BitGo, a leading digital assets custodian. And legacy financial firm Deutsche Börse got deeper into digital assets with the acquisition of a majority stake in Crypto Finance, a Swiss provider of trading, custody and investment services for digital assets.

Interest in the crypto space continues to intensify, with several large deals announced in the last several months.

In December, digital assets custody provider and institutional trading service provider Anchorage Digital closed a $350 million series D funding round in December that gave it a valuation of over $3 billion. The investor group in the San Francisco-based company, which received a federal banking charter in January 2021, included bold-face names from traditional finance such as Blackrock, Goldman Sachs, Thoma Bravo and Wellington Management.

In January, Coinbase, the largest crypto exchange in the US, announced an agreement to acquire FairX, a recently launched futures exchange focused on retail traders. Coinbase said it plans to leverage FairX's infrastructure to offer crypto derivatives to all Coinbase customers in the US. "We want to make the derivatives market more approachable for our millions of retail customers by delivering an easy-to-use user experience that Coinbase is known for," the company said.

Also in January, crypto exchange FTX raised an additional $400 million in funding from venture capital and other investors. That brought the company's valuation to $32 billion, roughly equivalent to the market capitalization of traditional exchanges Deutsche Börse and Nasdaq. FTX has stated that it will use the fresh capital for mergers, acquisitions and partnerships.

Click to enlarge a full list of 2021 M&A deals

2021 MA deals v2
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