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Cboe Global (CBOE) to Acquire MATCHNow, Foray Into Canada

Zacks Equity Research

Cboe Global Markets CBOE has agreed to buy MATCHNow in its effort to venture into Canada. The company will buy Canada’s largest “dark pool” stock trading platform from Virtu Financial VIRT. The buyout, pending approvals, is expected to see light in the third quarter.

About MATCHNow

Toronto-based MATCHNow boasts the largest equities alternative trading system (ATS) in Canada. Canada’s largest broker-neutral dark pool accounts for about 65% market share in total Canadian dark trading or 7% in Canadian equities volume. MATCHNow generated more than CAD10 million in revenues in 2019.

MATCHNow is a premier provider of Conditional Orders, a product Canada is increasingly adopting. It has the potential to be a meaningful contributor to MATCHNow’s volume growth.

Virtu Financial acquired MATCHNow as part of its Investment Technology Group buyout in March 2019.

Financing the Deal

Though financial details have not been disclosed, Cboe Global intends to deploy cash on hand to fund the transaction and stated that the purchase price is not material from a financial perspective.

Rationale Behind the Transaction

The acquisition, complementing Cboe’s equities business, is expected to help the acquirer gain a foothold in a key capital market and to build on a comprehensive equities platform for the Canadian market. Adding MATCHNow to its portfolio will also broaden this Zacks Rank #2 (Buy) options exchange’s North American equities business.

The acquisition in is tandem with Cboe Global’s strategy to accelerate geographic and asset class presence, while expanding customer reach. One of the world’s largest exchange holding companies already has U.S. and European presence covering many of the world’s largest equities marketplaces. With this buyout, the company will venture into the Canadian market.

Exchange operators have always considered Canada a part of their strategic initiatives, one of the world’s leading equities markets, to ramp up growth. Cboe Global envisions growth fueled by off-exchange trading.

Cboe Global estimates the acquisition to be immediately accretive to earnings, contributing 1 cent per share to 2020 bottom line.

Bryan Harkins, head of markets at Cboe Global stated “ we've always had our eye on Canada, It's one of the leading equities markets in the world, high turnover, and there aren't too many countries the size of Canada that are left on the map that you can really expand into, so we were opportunistic." He further added “one thing that we like about Canada is that you can operate as an exchange and you can also operate an ATS at the same time, so it creates a host of opportunities.” Notably, in February 2016, Nasdaq NDAQ had acquired dark pool trading platform Chi-X Canada.

MATCHNow can leverage the acquirer’s core strengths, market expertise, client distribution and economies of scale to ramp up growth, thus increasing competition in the Canadian marketplace.

Inorganic Growth Story

Cboe Global boasts a compelling inorganic growth story. The acquisition of Bats Global in 2017 expanded and diversified CBOE Global Markets’ product portfolio with the addition of U.S. and European cash equities, Global ETPs and Global FX.  In December 2019, the company inked a deal to purchase the remaining 80% stake in leading pan-European equities clearing house, EuroCCP to leverage opportunities in clearing and equity derivatives trading.

Apart from gaining competitive edge by diversifying as well as adding capabilities, strategic acquisitions diversify Cboe Global’s business mix as well as help in achieving expense synergies.

Price Performance

Shares of Cboe Global have lost 17.5% year to date against the industry’s increase of 1.7%. Nevertheless, solid fundamentals like diversified product portfolio and strong liquidity position should continue to drive the stock going forward.

Another Stock to Consider

Another top-ranked stock in the same space is MarketAxess Holdings MKTX. It operates an electronic trading platform that enables fixed-income market participants to trade corporate bonds and other types of fixed-income instruments worldwide. The company delivered a positive surprise of 3.70% in the last reported quarter. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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