Over the last couple of years, exchange-to-exchange M&A activity has increased considerably. More and more transactions are cross-regional and involve in particular US and Europe-based players. However, the proportion of aborted transactions has also increased significantly (5 out of 11). Therefore it appears that creativity will be required going forward to forge successful transactions. Below we discuss the key trends that we anticipate in M&A.
We expect to see smaller, focused transactions of exchanges aiming to develop a clear market profile and strengthen the operating model through buying rather than building specific capabilities to attract target clients.
Building national and regional champions
Several markets may see the establishment of national and regional champions. Encouraged by rising regulatory compliance costs and pricing pressures, M&A transactions to create national exchanges will focus on their ability to deliver cost synergies. One of the key advantages of local versus international mergers is the proximity of the two merging entities. As one interviewee pointed out, proximity is a major factor in achieving contemplated synergies.
Leading exchanges that aspire to become global players will likely explore alliances as a way of reaping some of the benefits that were previously envisaged from M&A. Finding a partner with the right fit is crucial if a partnership is to succeed. Other evidence indicates that alliances require thorough preparation and the continuous nurturing of mutual trust between the partners in order to be successful.