London Stock Exchange Group (LSEG) has offered to acquire index specialist Russell Investments for US$2.7 billion after months of speculation, a move that could help it build its presence in derivatives markets.
The deal will significantly expand LSEG’s portfolio of index products. It already owns FTSE, which accounts for approximately US$4 trillion of benchmarked equities, and the acquisition of Russell will add a further US$5.2 trillion of benchmarked assets.
US-based Russell will also give the London-based group a large US footprint as part of its diversification strategy. LSEG said the index business will also help it to capitalise on the growth in popularity of multi-asset and passive investment strategies.
Xavier Rolet, CEO of LSEG, said: “Russell’s index management business is a strong strategic fit with FTSE. With this acquisition we are strongly positioned for the changing dynamics in the global indices market with a best in class offering, which we believe will help deliver outstanding returns for our shareholders.”
Acquiring Russell could also help LSEG to bolster its derivatives business, according to Peter Randall, former CEO of both Equiduct and Chi-X Europe.
He told theTRADEnews.com that the investment in Russell “will enable LSEG to develop new derivatives contracts linked to Russell Indices, resulting its venues becoming the natural place to trade these products.”
In July 2013, LSEG transferred the Turquoise Derivatives marketplace into the main group, rebranded it the London Stock Exchange Derivatives Market. The business had been suffering declining trading volumes in contrast with Turquoise’s equity trading platform.
In late 2011, LSEG acquired the 50% stake in FTSE it did not already own in a bit to further bolster its position in derivatives trading, and launched FTSE 100 futures and options. The launch put it in direct competition with the Liffe derivatives exchange, which has a well-established business trading a number of FTSE-based contracts including the FTSE 100.
In addition to the index business, LSEG will also acquire Russell’s investment management business, which provides multi-asset investment solutions to both institutional and retail investors.
The business has US$256 billion in assets under management and offers portfolio construction, capital market insight, manager research indices and portfolio implementation services.
Peter Lenardos, an analyst at RBC Capital Markets, said the acquisition will give LSEG an index business of comparable size to MSCI.
“This transaction will allow LSEG to compete more effectively with MSCI, will improve liquidity in LSEG's shares, and will provide more recurring revenue that is typically assigned a higher multiple by the market,” he said.
Russell’s president and CEO, Len Brennan, will join the executive committee at LSEG on completion of the deal.