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Cboe Global (CBOE) Buys Chi-X Asia Pacific, Expands Equities

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·5 min read
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Cboe Global Markets, Inc. CBOE has inked a deal to acquire an alternative market operator and provider of innovative market solutions known as Chi-X Asia Pacific Holdings, Ltd. (Chi-X Asia Pacific) from J.C. Flowers & Co. LLC, in a bid to expand its global equities business into Asia Pacific region. Pending regulatory conditions, the deal is projected to close in the second or third quarters of 2021.

Though the transaction terms were not revealed, the stock exchange operator has planned to fund the transaction with cash on hand, supplemented by existing credit agreements.

About Chi-X Asia Pacific

Chi-X Asia Pacific is one of the fastest growing market operators in the Asia-Pacific region, with a 3-year CAGR of 17% in net revenues. It operates through Chi-X Japan (CXJ), the third largest equity venue and a leading proprietary trading system for Japanese equites with a 2.7% market share and Chi-X Australia (CXA), the country’s second largest securities and derivatives exchange with 18.4% total market share.

Chi-X Asia Pacific is a high-growth business that generated $26.5 million in net revenues over the 12 months ended Dec 31, 2020, up 26% from 2019.

Rationale Behind the Deal

The acquisition is expected to furnish Cboe Global with a single point of entry into two high growth regions – Australia (world's 9th largest global economy) and Japan (the 4th largest global economy). It will enhance opportunities to broaden distribution of Cboe Global’s unique proprietary products to clients in Australia and Japan and expand its global equities business in Asia Pacific.

The transaction will help to build one of the world’s largest global securities and derivatives networks. It will accelerate growth across products and geographies, increase access globally, particularly for proprietary products, and enhance its ability to serve global customer base.

The deal will provide the company an opportunity to broaden distribution of global market data, including newly created Cboe’s Data and Access Solutions business, diverse revenue streams with balanced mix of transaction (33%) and non-transaction (67%) revenues.

The deal has the potential to provide greater access to market participants through consistent technology and operations across Cboe geographies and is projected to leverage Cboe Global’s leading technology to gain operational efficiencies.

In the first quarter of 2021, it acquired BIDS Trading, the largest block-trading Alternative Trading System (ATS) by volume in the United States. With this latest acquisition of Chi-X Asia Pacific, Cboe Global expects to extend BIDS network to new regions, expanding global network and create a global block trading platform to serve a broader base of customers.

Cboe Global further sees an opportunity to become the global leader in equities market data and offer comprehensive data from most major markets around the world including the United States, Canada, Australia, Japan and 15 European countries.

Cboe Global expects to expand its geographic and asset class presence and also extend the product offerings to its global network of customers.

Inorganic Growth Story

Cboe Global boasts a compelling inorganic growth story given its prudent acquisitions. 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.

Recently, Cboe Global acquired Trade Alert to provide real-time data, market information and alerts to customers. In August 2020, it acquired MATCHNow from Virtu Financial VIRT to gain a foothold in a key capital market and to build on a comprehensive equities platform for the Canadian market.

In July 2020, it had acquired leading pan-European equities clearing house, EuroCCP to boost its European equities business as well as leverage the strength of its pan-European network, and pursue the development of derivatives trading and clearing capabilities in the European equities business.

Price Performance

Shares of this Zacks Rank #3 (Hold) stock exchange operator have underperformed the industry in the past year. The stock has gained 13.5% compared with the industry’s increase of 31.9%. Nevertheless, its diversified product portfolio and strong liquidity position should drive the stock going forward.

Stocks to Consider

Some better-ranked stocks from the finance sector are OTC Markets Group Inc. OTCM and International Money Express, Inc. IMXI, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings of OTC Markets surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 11.96%.

The bottom line of International Money Express surpassed estimates in each of the last four quarters, the average being 11.92%.

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