CME Group Acquires NEX Group, Expects Cost Synergies of Up to $200 Mn Annually by 2021

CME GroupThe CME Group ( NASDAQ: CME) and NEX Group Plc. has reached a definitive agreement on the acquisition of the latter by former and is valued at £10 per share. CME Group will pay out 500 pence in cash and 0.0444 CME Group shares based on the trading price on 28th March 2018, ie $158.84 and the exchange rate of $1.4101:£1, on March 28, 2018. The transaction has been approved by the board of both the entities and is expected to close the deal in the second half of 2018, pending approvals by regulators and NEX shareholders,

Through this deal, CME Group will able to improve its trading technology and streamline access by the reducing touch points that clients need to trade across products. Also, NEX’s OTC post-trade products and services complement CME Group’s derivatives clearing services. It will also help in strengthening the NEX compression, reconciliation and processing businesses.

CME Group Chairman and Chief Executive Officer Terry Duffy said on the development: 

“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. As one organization, we will be able to employ the complementary strengths of each company to serve a wider client base while diversifying our combined businesses across futures, cash and OTC products and post-trade services.”

He added: “Michael Spencer and his senior leadership team have built a world-class organization that is at the centre of capital markets. We are committed to maintaining the longstanding relationships NEX has with its clients, and exchange and clearinghouse partners. Building on NEX’s deep roots in Europe and Asia and CME’s strong technology platform, we will transform our international profile and broaden our distribution network in spot and futures FX products as well as cash, repo and futures products in U.S. Treasuries.”

Post completion of the acquisition process, NEX CEO Michael Spencer will be appointed to the Board of Directors of CME Group and will also serve Special Advisor of the combined entity. He will also be the ambassador of the combined entity working with key clients, regulatory authorities in EMEA and Asia. Spencer commented:

“The combination of NEX and CME will be an industry-changing transaction. Bringing together cash and futures products and OTC services will be unique, offering clients improved access to trading, greater financial efficiencies and highly valuable data sets. The technology and innovation opportunities will be diverse and extraordinary. Clients will be better served. CME’s decision to choose London as its European headquarters is also a signal of tremendous support for Britain’s financial services sector.”

According to the terms of the transaction, each NEX share will be entitled to 500 pence in cash and 0.0444 shares of CME Group Class A common stock. The deal is likely to be immediately accretive to adjusted cash earnings per share and run-rate cost synergies are expected to touch $200 million annually by the end of 2021. JP Morgan is acting as a lead financial advisor while Barclays is acting as financial advisor to the CME Group.