Analysis: Transactions in the financial sector are expected to intensify

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NEW YORK (Reuters) – Big acquisitions in the fragmented financial data sector are just a taste of deals to come, as vendors seek to expand their offerings and secure resources to invest in new technologies like than artificial intelligence, according to investment bankers and analysts.

FILE PHOTO: The S&P Global logo is displayed on its offices in the Financial District in New York, U.S., December 13, 2018. REUTERS/Brendan McDermid/File Photo

Two of the top three industry players have signed transformative deals in the past two years, increasing pressure on the top player, Bloomberg LP, and others such as CME Group Inc, Nasdaq Inc and MarketAxess Holdings Inc to ‘they join,’ these experts said.

Potential acquisition targets, the bankers said, include Factset Research Inc, Tradeweb Markets Inc and MSCI Inc due to their strong niches in financial data. They have a market value of $13.4 billion, $14.3 billion, and $35.1 billion respectively.

Data providers are rushing to diversify their offerings and use their existing distribution channels, such as desktop terminals, to sell more products.

Data providers also need scale to embark on technological innovations such as artificial intelligence and machine learning that can keep pace with the needs of their financial and business customers, from high-speed trading to data processing. big data.

“Without significant actions to improve their businesses, these companies are less able to act quickly to mitigate their risk of loss,” Burton-Taylor wrote in a report last week.

Bloomberg declined to comment. CME, Nasdaq, MarketAxess, Factset, MSCI and Tradeweb did not respond to requests for comment.

AVERSION TO ACQUISITIONS

Last year, Refinitiv struck a $27 billion deal to sell to London Stock Exchange Group Plc, while S&P Global Inc struck a $44 billion deal last week to acquire IHS Markit Ltd. Thomson Reuters Corp, the parent company of Reuters News, owns a 45% stake in Refinitiv and will own around 15% of the London Stock Exchange once this deal closes in early 2021. Intercontinental Exchange, owner of the New York Stock Exchange and another major player in financial markets data, said in August it would acquire mortgage technology platform Ellie Mae for $11 billion, expanding its real estate capabilities.

Michael Bloomberg, the founder of the eponymous financial data giant, has so far avoided big deals. Excluding a transaction where a stake in the company was purchased from another party, Bloomberg’s largest ever acquisition was that of Bureau of National Affairs Inc, a provider of legal, tax and regulatory information, in 2011 for $962 million.

This reflects Bloomberg’s confidence in the enduring success of its terminal business, the software that provides business information and connects users that has become ubiquitous in the world of finance and business, according to investment bankers who have been offering potential deals to the company for years.

Bloomberg’s competitors have been unable to supplant it as the market leader in financial data. It has made the terminal synonymous with having a professional desktop computer, akin to referencing Google as a shortcut for Internet search or Zoom for video conferencing calls.

Still, while the terminal’s dominance isn’t under threat, the company’s growth prospects are, industry experts and analysts said. The trading rooms of Wall Street firms that propelled Bloomberg’s meteoric rise are no longer growing, and some of its clients who need niche information are turning to data providers that charge less than subscription. annual cost of more than $20,000 from the terminal.

Bloomberg will have to overcome its aversion to big acquisitions to diversify its revenue while its terminal business is still strong, bankers and analysts said.

“Strategically, they may want to look beyond their current industry by expanding into verticals, including the energy and technology industry, or providing more data to current customers,” said said Jeff Silber, analyst at BMO Capital Markets.

Bloomberg declined to comment.

Another countdown for Bloomberg is its founder, a major philanthropist and former candidate for President of the United States. The 78-year-old tycoon, whose fortune is pegged by Forbes at $55 billion, led the company on and off as chief executive for four decades. He resisted arguments from investment bankers for an initial public offering that would allow him to sell his roughly 90% stake and his employees to sell the shares of the company allocated to them on the open market.

Michael Bloomberg could not be reached for comment.

EXCHANGES IN SEARCH OF GOOD DEALS

CME Group, the world’s largest futures exchange operator, may seek to diversify its revenue as persistently low interest rates reduce demand for its hedging products through rate futures, commodities and currencies.

CME did not respond to requests for comment.

The Nasdaq said it wants to expand its market technology and information services business. Last month, he agreed to buy fraud detection platform Verafin for $2.75 billion, another big step in his efforts to diversify revenue streams away from trading.

The Nasdaq did not respond to a request for comment.

Marketaxess, an operator of fixed income trading platforms, made two small purchases in the third quarter which expanded its trading, data and post-trade business, and analysts said it was looking to diversify further.

Marketaxess did not respond to a request for comment.

Reporting by David French and Krystal Hu in New York; Editing by Greg Roumeliotis and Aurora Ellis

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