On the morning of October 26, Intercontinental Exchange, Inc. (NYSE: ICE) announced that it has entered into an agreement to acquire Bedford, Massachusetts-based Interactive Data Holdings Corporation (“IDC”). According to the company, the transaction was valued at an enterprise value of $5.2bn or about 5.5x LTM revenue and 13.8x LTM EBITDA. Wow!
We like IDC. They have a strong franchise in the data business for portfolio managers as well as several other market leading businesses. And there’s no question that this transaction is strategic for ICE. ICE will be able to tap into IDC’s wide array of fixed income data (over 2.7mm financial instruments in 135 countries and 50 different currencies). Adding IDC’s bond pricing data to ICE’s clearing and trading credit-default swaps business should allow ICE to offer clients extensive tools for pricing over-the-counter products that are often difficult to value. The deal should help ICE broaden the depth of its market data business and bring them a whole new customer base. They also assert that there will be $150mm of annual cost savings once the two companies are fully joined.
This is not ICE’s first foray into the market data space. In September 2014, ICE acquired New York-based SuperDerivatives Inc., in an all cash acquisition of $350mm. And of course, in November 2013, they acquired NYSE Euronext in a cash and stock deal that that was then valued at around $11bn. (ICE has since spun off Euronext.) The New York Stock Exchange came with substantial market data assets.
Each month, we put out the M&A Market Update which reflects m&a values in the dozen plus sectors that we follow and sometimes lead. ICE falls within our “Securities Exchanges” sector and IDC falls within our “Data & Analytics – Financial Services” sector. Average multiples in the “Data & Analytics – Financial Services” sector have traded at 5.5x LTM revenue and 17.4x LTM EBITDA over the last twelve months. And so, from that perspective the price is not out of line with other deals. You can see our latest report HERE.
The IDC transaction multiples of 5.5x LTM revenue and 13.8x LTM EBITDA compares to ICE’s trading multiples of 9.4x LTM Revenue and 14.6x LTM EBITDA, which means that the transaction should be accretive to ICE. The use of ICE stock for a material portion of the purchase price also mitigates their risk in the event of a market slowdown. Earlier in the year, Fidelity National Information Services (NYSE: FIS) acquired SunGard Data Systems, valuing the company an enterprise value of $9.1bn or 3.2x LTM revenue and 11.2x LTM EBITDA. We believe that IDC warranted stronger multiples.
The sellers included PE firms Silver Lake and Warburg Pincus, who together acquired 100% of IDC in a LBO transaction valued at $3.2bn in July 2010. Prior to the sale, Silver Lake and Warburg Pincus had contemplated an IPO exit for IDC, and to that end the company filed an S1 early October 2015. Thus once again showing that in the current market, for many firms, an S1 is a “For Sale” sign. The sellers eared about a 2.5x return over the 5 year span they owned the company. IDC has more than 2,400 employees in 25 offices worldwide. The deal is expected to close at the end of this year. We call it both well bought and well sold.
For more see our Market Update.