CME Group Inc. (NASDAQ:CME) has agreed to acquire NEX Group plc for £10 per share in a cash-stock deal. The transaction is expected to culminate in the second half of 2019, subject to closing conditions.
The buyout could lead the acquirer to emerge as a cross-border trading powerhouse.
The Purchase Consideration
Each shareholder of NEX Group will receive 500 pence in cash and 0.0444 common shares of CME Group.
Rationale Behind the Transaction
London-based NEX Group, formerly known as ICAP (LON:NXGN) plc, focuses on electronic markets and post trade business. Adding NEX Group to CME Group’s portfolio will likely ensure recurring, subscription-based revenues for the company’s transaction-based revenue model.
While NEX Group boasts premier OTC (over the counter) post-trade products and services, CME Group aces in derivatives clearing services. The acquisition is a perfect strategic fit for the company.
CME Group will leverage NEX Group’s leading electronic FX and fixed income cash execution platforms to improve trading technology and streamline access. The buyout expands the acquirer's forex business besides widening geographies. CME Group can have trading opportunities across spot and futures FX products as well as cash, repo and futures products in U.S. Treasuries.
Both companies can leverage strengths to serve clients better. CME Group chairman and CEO Terry Duffy stated that "At a time when market participants are seeking ways to lower trading costs and manage risk more effectively, this acquisition will allow us to create significant value and efficiencies for our clients globally".
CME Group estimates $200 million in run-rate cost synergies annually by the end of 2021 from this buyout.
Post acquisition, NEX Group CEO Michael Spencer will join the CME Group board of directors.
Growth Initiatives
CME Group continuously focuses on strategic initiatives that will accelerate its growth.
The company shuttered its London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe, citing customers’ preference to trade more via CME Group’s U.S. platform. Terminating operations might lead to annual savings ranging between $10 million and $12 million, which in turn will likely impact the current year in a huge way. The same move is also expected to free up over $150 million in capital.
CME Group is concentrating more on over-the-counter clearing services on interest rate swaps and foreign exchange and therefore has plans to exit the credit default swap clearing business by mid-2018.
Shares of CME Group have gained 9.2%, outperforming the industry’s 4.6% increase. Efforts to expand and cross-sell through tactical alliances, acquisitions, new product proposals as well as a strong global footprint should further drive growth for the stock in the near term.
CME Group carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the finance sector are AllianceBernstein Holding L.P. (NYSE:AB) , American Equity Investment Life Holding Company (NYSE:AEL) and American Financial Group, Inc. (NYSE:AFG) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AllianceBernstein, an investment manager, provides research services to its clients. The company delivered an average four-quarter positive earnings surprise of 8.54%.
American Equity Investment provides life insurance products and services in the United States. The company pulled off an average four-quarter positive surprise of 27.23%.
American Financial provides property and casualty insurance products in the United States. The company came up with an average four-quarter beat of 26.31%.
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AllianceBernstein Holding L.P. (AB): Free Stock Analysis Report
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CME Group Inc. (CME): Free Stock Analysis Report
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