Source: London Stock Exchange
London Stock Exchange Group (LSEG) has reached an agreement with Citigroup Inc. (Citi) to acquire The Yield Book and Citi Fixed Income Indices, a fixed income analytics platform and index business comprising a family of fixed income indices (including the WGBI) (together the “Business”) for a total cash consideration of $685 million (£535 million), subject to customary adjustments (the “Acquisition”).
Subject to regulatory clearance and other customary closing conditions, the transaction is anticipated to close in the second half of 2017.
The Acquisition represents a significant opportunity for LSEG to enhance the data and analytics capabilities of its Information Services division (“ISD”) and its FTSE Russell franchise bringing, in particular, an increase in benchmark AUM to around $15 trillion, enhanced analytics capabilities and a broader multi-asset customer servicing capability. The Acquisition enables FTSE Russell to offer a comprehensive fixed income index family, broad and deep fixed income analytics to customers and a recognised global brand for both equity and fixed income in North America, Asia and Europe. The Acquisition reflects LSEG’s ongoing commitment to expanding the capabilities of its ISD, and follows the acquisition of the Russell indices business in 2014 and Mergent Inc. in 2016. The Yield Book also helps to strengthen LSEG’s presence in the United States, as well as ISD’s global distribution capabilities and also provides strong connectivity with the asset owner community in North America and Asia.
Mark Makepeace, Group Director of Information Services and CEO of FTSE Russell said:
“The acquisition of The Yield Book and Citi Fixed Income Indices supports the continued strong growth and development of London Stock Exchange Group’s Information Services division. 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. I very much look forward to working together with the team at Yield Book and Citi Fixed Income Indices as we develop our businesses over the coming months. We are also delighted that Citi will remain a significant customer of the Yield Book and a long term partner.”
The Business includes a fixed income client base from around the globe, offers widely trusted proprietary fixed income analytics and indices that enable market participants to perform complex portfolio analysis and risk management, including portfolio construction, risk forecasting and performance analysis tools.
The Yield Book’s highly respected analytics platform is operating in its third decade and serves approximately 350 institutions globally including investment management firms, banks, central banks, insurance companies, pension funds, broker-dealers, hedge funds and investment management firms. The Yield Book’s products offer analytical insights into a broad array of fixed income instruments with specific focus on mortgage, government, corporate and derivative securities. The Yield Book’s mortgage models, developed in collaboration with Citi’s mortgage quantitative analysis and research teams, are widely considered to be the industry standard. The Yield Book’s products and services will continue to be supported by a highly experienced team and the analytics platform will continue to grow. Further, LSEG and Citi will enter into a long-term partnership, by which each is committed to collaborating on future development and support of these models and associated products. Citi will remain a significant customer of The Yield Book and a long term partner.
Citi Fixed Income Indices have been producing fixed income indices for more than 30 years. These indices, designed to appeal to a wide range of market participants, are widely followed and broadly published. The World Government Bond Index is among the most closely followed globally. Citi’s Fixed Income Indices have approximately 300 clients globally, including 200 buy-side fixed income asset managers and asset owners. From traditional market value-weighted benchmarks to innovative alternatively-weighted strategy indices, the comprehensive family of indices will join FTSE Russell’s existing portfolio of complementary indices, broadening its multi-asset offering. The indices will continue to be maintained based on existing design criteria and calculation methodologies, and will continue to align with regulatory requirements such as the IOSCO principles.
In the year to 31 December 2016, the combined Business generated revenue of $107 million and EBITDA of $46 million (implying an EV / 2016 EBITDA of 14.9x), based on a pro forma estimate of the central costs to be allocated to the Business under LSEG ownership.
LSEG expects to achieve revenue synergies of $30 million over the first three years post completion through investment in new product opportunities and increased index adoption. Additionally, LSEG expects to achieve cost synergies of $18 million 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, LSEG 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 and is expected to close in the second half of 2017 following satisfaction of closing conditions, including expiry of the waiting period under the Hart-Scott-Rodino Act. The Acquisition is expected to be accretive to earnings in the first full year following completion. The existing leadership team and employees of The Yield Book will transfer with the business to LSEG.
Barclays Bank PLC, acting through its Investment Bank (“Barclays”) acted as financial advisor to London Stock Exchange Group. Freshfields Bruckhaus Deringer LLP was counsel to London Stock Exchange Group.
1. Calculation of sterling consideration assumes a USD/GBP FX rate of 0.781.
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