M and A
The Refinitiv Deal: What It Means For Wealth Management
This article examines the London Stock Exchange Group's purchase agreement for Refinitiv, what it might mean for wealth management, and the wider financial industry.
Tech firms that serve banks are going through the same M&A
upheavals that the institutions they cater for have experienced
since before the 2008 financial crisis. The recent London Stock
Exchange Group’s $27 billion purchase of data provider Refinitiv is one of the
biggest shifts in the competitive landscape for years.
The agreement came less than a year after a consortium led by
Blackstone,
together with Canada Pension Plan Investment Board and GIC,
completed a partnership deal with Thomson Reuters for
the latter firm’s Financial & Risk business, which was
subsequently rebranded as Refinitiv. That consortium owned 55 per
cent of the equity in Refinitiv, and Thomson Reuters kept the
remaining 45 per cent stake. And now LSEG is to take this
organisation over. It has been a hectic 12 months.
Refinitiv will be familiar to wealth managers for offerings such
as its Eikon range of capabilities that cover cross-asset
data and news, analytics and reporting tools. Another of its
offerings is Compliance Management, a solution on its Connected
Risk platform.
The London
Stock Exchange Group takeover will give Refinitiv cash to
finance development, which should be broadly positive for users
such as banks and wealth managers, analysts said. The agreement
also turns up heat on rival vendors such as Bloomberg. Rising
competition comes at a time when cost pressures are all too often
upwards, partly due to rising regulatory loads stemming from laws
such as Europe’s MiFID II or Dodd-Frank in the US.
The rise of digital wealth management platforms and a trend
towards “industrialisation” of parts of the value chain – noted
recently by firms such as EPAM in a
recent discussion hosted by this publication - means
that tech firms are keen to grab as large a chunk of the terrain
as they can. Digital advances in wealth management create a need
to process data more efficiently than ever before.
Firms such as SS&C
Technologies and Avaloq, to name just two, are driving hard
to win markets and become the go-to organisations that wealth
managers will want to use. It is still a crowded field but some
consolidation is under way. A few weeks ago fintech
specialist FNZ
Group bought wealth management technology provider JHC. (FNZ offers outsourced
services such as those allied to the digital user experience,
client, account and portfolio management and back-office trade
execution, settlement and investment administration. JHC is known
for services such as its Figaro wealth platform for account
administration, trading, reg. compliance, and Neon, a dashboard
to monitor portfolios, analyse risk and check
suitability.) In 2018 FNZ also agreed to acquire German
investment platform ebase from Commerzbank, showing the
importance of Europe’s largest economy to its thinking about
business strategy.
Private equity big-hitter Warburg Pincus, which has ownership stakes in a variety of financial firms, has a big stake in Switzerland’s Avaloq. In the case of US-based SS&C, it bought wealth management software firm Advent in early 2015 in a $2.7 billion cash deal. (Advent provides services such as portfolio management accounting and reporting, trading, rebalancing and compliance, client portals, data management and fund accounting.) And another deal of note was that of Anglo-US investment firm Motive Partners, with its purchase of Finantix in 2018. Yet another deal worth mentioning in this context was wealth industry software company IRESS's (2017) acquisition of a strategic equity stake in regulatory technology firm Lucsan – that transaction showed how data analytics is becoming more important for firms handling rising compliance workloads. This year, IRESS bought QuantHouse, an international provider of market data and trading infrastructure, for a price of up to €38.9 million ($43.5 million).
So what to make of the LSEG/Refinitiv transaction?
“The data angle has been widely noted, and is accretive for both
sides. From the LSEG perspective, the deal represents a direct
route into the burgeoning retail wealth market, with Refinitiv
and its platforms like ThomsonOne, Eikon and Beta as the tech
chassis. To Refinitiv, the cash will fund tune-ups of these
platforms as well as investment in hot areas like the (knowledge)
graph technology and AI,” Will Trout, head of wealth management
at consultancy firm Celent, told this
publication.
As LSEG’s own press announcement last week said, Refinitiv’s
market data, analytics and execution capabilities cut across
asset classes and focus on four main customer segments: trading,
investment and advisory, wealth, and risk management. Refinitiv
provides company, economic, deal, pricing and reference data,
real-time data and desktop analytics.
Wealth managers paying for data will be wary of any fee
increases, and will hope that the latest M&A deal strengthens
rather than weakens competition. A fortnight ago, the
European Securities and Markets Authority said that the MiFID
II regulations on financial services have not done enough to
improve clarity and competition over pricing, and is consulting
the industry about market data fees. (One impact of MiFID II
already has been to squeeze provision of sell-side research
because of the requirement on managers to itemise separately what
they spend on research.)
“I note the article states that some firms have called on ESMA to
review market data fees. I would echo that. My main concern is
with how aggressively the exchanges and index providers pursue
commercial terms once they have acquired data sources. It is
already expensive for wealth managers to use the pricing, index
and analytical data they require for investment reporting, and
any move to further increase costs will not be met happily,” a
senior figure in the UK’s wealth and technology sector told this
publication.
Taking a more enthusiastic line on the deal is Daniel Connell,
who is managing director, Market Structure and Technology at
Greenwich
Associates in the US. “I think this merger would benefit the
overall market as it creates another broad provider of market
data solutions. LSEG is clearly committed to data and data
analytics businesses. Combining the strength of the Refinitiv
core data sets and technology with the Index and data services of
LSEG can produce a stronger set of content and solutions from a
single source.”
“I don’t see much in the way of streamlining of products and
solutions from the combined entity. I think they are quite
complimentary, actually. Where I do see streamlining is in the
user experience, as they can now access products across a
spectrum of solutions from a single source where things like
common identifiers will make for an easier integration process,”
he said.
Refinitiv is a global business. Its sponsorship for this
publication’s recent Asia awards event in Singapore and upcoming
MENA Awards in Dubai in November for example, shows its drive to
build a global footprint.
Growth
LSEG said the combined group is targeting a revenue compound
annual growth rate of 5 to 7 per cent over the first three years
after the deal is complete. It is also going after annual
run-rate cost synergies in more than of £350 million by the end
of year five after the acquisition is completed, with
“significant additional benefits from refinancing Refinitiv’s
existing debt”. The enlarged business will be chaired by Don
Robert, LSEG’s chairman, and led by David Schwimmer as chief
executive, with David Warren as chief financial
officer.
David Craig will join LSEG’s executive committee and continue as
chief executive officer of Refinitiv.