IntercontinentalExchange’s SuperDerivatives Acquisition To Boost Market Data Business
Leading exchange operator IntercontinentalExchange Group (NYSE:ICE) announced that it has entered into a definitive agreement to acquire financial services company SuperDerivatives for $350 million in an all cash transaction. [1] SuperDerivatives is one of the leading providers of market data, risk analytics, valuation services and cloud-based derivatives data in the world with operations across the Americas, Europe and Asia-Pacific. ICE expects the acquisition to close by the end of Q4 2014.
ICE management mentioned that the acquisition should help the company expand its presence in the technology services market and extend its clearing and data capabilities. According to some reports, ICE’s peer exchange operators such as CME Group (NASDAQ:CME) and NASDAQ OMX Group (NASDAQ:NDAQ) were also interested in acquiring SuperDerivatives. [2]
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SuperDerivatives Market Data And Analytics
SuperDerivatives provides market data and risk management services across various asset classes such as foreign exchange (FX), interest rates, equities, energy and commodities. These services include pre-trade analysis, derivative pricing, valuation services for over-the-counter (OTC) derivatives, market data platform and live data feeds. SuperDerivatives’ multi-asset OTC trading platform SDeX is a front office tool which allows users to execute trades at the best available prices without having to browse through or retype trades on multiple platforms. Users can work on a single screen to reach out to the banks on its easy-to-use platform, which is supported by 26 top banks including Morgan Stanley. Additionally, SuperDerivatives has a market data platform DGX, which provides real-time price changes, analytics and news flow to customers. The company has laid out plans to make the DGX platform more user friendly by connecting it to social media outlets such as Google hangouts, Yahoo! chat and AOL messenger. Its plans also involved introducing and developing a Twitter widget to better aid its customers. [3] SuperDerivatives’ technology, coupled with ICE’s market reach, could potentially compete with Bloomberg Terminal, the market leading data analytics tool.
After acquiring NYSE-Euronext in late-2013, ICE’s combined market data division generated about $200 million in revenues through the first half of 2014. The addition of SuperDerivatives could contribute an estimated $40 million per quarter to ICE’s market data and technology revenue streams in the coming quarters. [4] According to our estimates, the market data and technology division has higher margins than the trading business, with the company posting an EBITDA margin of nearly 65% in the first half of 2014.
Margins To Continue To Improve
ICE spun off its Euronext business for $1.9 billion in June this year to remove the debt accrued during the NYSE-Euronext acquisition last year. ICE’s debt declined from $5.1 billion in December last year to $3.9 billion at the end of the June quarter. The move to spin off Euronext should help ICE improve its margins in the coming years, since equity trading is typically a low-margin business. Additionally, the company sold off some of its redundant technology businesses such as Nyfix, Wombat and Metabit in June to generate cash and improve its cost structure. [5] The company has also indicated that it will initiate efforts to reduce its global workforce as it continues its restructuring process. We currently forecast the EBITDA margin for ICE’s market data and technology division to improve to over 66% by next year. ICE’s market data and technology division constitutes about one-third of the company’s value, according to our estimates, while its core derivatives trading business makes up nearly 60% of our $225 price estimate for IntercontinentalExchange Group. Our price estimate is nearly 20% ahead of the current market price.
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Notes:- ICE to Acquire SuperDerivatives for About $350 Million, Wall Street Journal, September 2014 [↩]
- ICE Looks to Crack Financial Data Market, Financial Times, September 2014 [↩]
- SuperDerivatives Lays out DGX 2014 Roadmap, Waters Technology, January 2014 [↩]
- SuperDerivatives Discusses a $300-$400 Million Acquisition Offer, Forex Magnates, June 2014 [↩]
- ICE Agrees to Sell Nyfix and Metabit Businesses, Wall Street Journal, June 2014 [↩]