London Stock Exchange Group PLC (LON:LSE) has made its first acquisition since shrugging off the disappointment of its blocked merger with German rival Deutsche Boerse AG, expanding its indices business with the US$685mln (£535mln) purchase from Citigroup Inc. (NYSE:CITI) of The Yield Book and Citi Fixed Income Indices.
In a statement, the FTSE 100-listed group said the acquisition – of a fixed income analytics platform and index business comprising a family of fixed income indices - represents a “significant opportunity for LSEG to enhance the data and analytics capabilities of its Information Services division and its FTSE Russell franchise”.
The LSE pointed out the deal will increase its benchmark assets under management to around US$15trln, enhance analytics capabilities and “give a broader multi-asset customer servicing capability.”
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It added that, subject to regulatory clearance and other customary conditions, the transaction is anticipated to close in the second half of 2017.
Mark Makepeace, group director of Information Services and CEO of FTSE Russell said: “The acquisition represents a significant step for FTSE Russell to acquire a world-class fixed income analytics and index business, enhancing our ability to provide customers with broader multi-asset capabilities and a deeper data and analytics offering.”
He added: “We are also delighted that Citi will remain a significant customer of the Yield Book and a long term partner."
Acquisition expected to be accretive to earnings in the first full year
In the year to 31 December 2016, the combined business bring acquired generated revenue of US$107mln and had underlying earnings (EBITDA) of US$46mln, implying an enterprise value/2016 EBITDA of 14.9x for the deal.
LSE said the acquisition is expected to be accretive to earnings in the first full year following completion.
The group said it expects to achieve revenue synergies of US$30mln over the first three years after completion through investment in new product opportunities and increased index adoption.
Additionally, the group expects to achieve cost synergies of US$18mln over the same period through operational efficiencies to align FTSE Russell product strategy with The Yield Book, with further potential upside in the subsequent two years.
By the end of the first three years post completion, LSE expects to deliver an increase in the EBITDA margin to at least 50%, improving as further synergies are achieved.
The acquisition is being funded from existing cash resources and credit facilities, LSE added.
In a trading statement at the end of April, Xavier Rolet, LSE‘s chief executive had said the group was “actively engaged in exploring selective ongoing organic and inorganic investments in order to drive further growth.”
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The deal comes two months after the European Union competition commissioner Margrethe Vestager put a final bullet in the LSE and Deutsche Boerse merger plans on March 29, coincidentally – or not – the day UK prime minister Theresa May triggered the process for a Brexit from the EU.
The US$28bn all-share merger plan was terminated, after almost exactly a year of wrangling, after Vestager ruled that it "would have significantly reduced competition" in the area of clearing of fixed income instruments.