What does Borsa Italiana bring to Euronext?
This transforming acquisition has changed our scale by enabling us to build a group generating 1.4 billion euros in turnover with an Ebitda of 0.85 billion pro forma. This size effect has implications for the attractiveness and liquidity of our stock markets. With the Milan Stock Exchange, it is the market infrastructure of the third largest economy in the European Union which joins Euronext. With the group’s other markets, Amsterdam, Brussels, Dublin, Lisbon, Oslo and Paris, our market share reaches 25% of the volumes traded on equities in Europe, including the United Kingdom. The aggregate market capitalization of stocks listed on Euronext is €6.9 trillion, three times that of the London Stock Exchange and twice that of Deutsche Börse. Although the Italian equity market is smaller than that of Paris, Italy becomes the first country of the group ahead of France, representing 33% of the Euronext Group’s revenues against 28% for the share of revenues generated in France. Indeed, Borsa Italiana includes three activities that enable Euronext to greatly diversify its income: a bond trading platform (MTS), a clearing house (CC&G) and a central depository (Monte Titoli, now Euronext Securities Milan).
However, the stock market value of Deutsche Börse is 3.3 times greater than that of Euronext, and its price has increased more over the past year…
The German Xetra Stock Exchange is smaller than that of Paris, but Deutsche Börse is a group of companies whose turnover is much higher than that of Euronext. The group thus includes a derivatives platform and a clearing house (Eurex), a central depository (Clearstream), the Stoxx indices and the voting policy consulting firm ISS. As for our stock market performance, it has been much better than that of Deutsche Börse over time since our IPO in 2014, since since that date our share price has increased by +444%.
How is the integration of Borsa Italiana progressing?
The Milan Stock Exchange will migrate in 2023 to the Optiq system, our trading platform. This unique order book is the core of our unique liquidity pool. Furthermore, the data center from Basildon, near London, since 2011, will be repatriated in June to the European Union, near Bergamo, in the Milan region. This new data center is one of the few completely green data centers. With its two hydroelectric plants and photovoltaic panels, it produces 110% of the energy it consumes. This transfer will allow us to develop new revenues because, at Basildon, we were not the operator of the hosted co-location servers, which process the orders of the major bank clients of Euronext.
Will you also integrate compensation?
We will indeed develop this strategic clearing house function in Europe between 2023 and 2024, thanks to the subsidiary of Borsa Italiana, CC&G, renamed Euronext Clearing. Currently, the margin for this activity is entirely captured by LCH SA, a subsidiary of the London Stock Exchange (LSE), as well as by other clearing houses, of which we are clients. For the record, in the early 2000s, Euronext sold this clearing activity to the LSE group. By buying the Borsa Italiana group, and therefore CC&G, from LSE, our relationship is evolving naturally. Euronext Clearing will be the clearinghouse for all markets operated by Euronext, offering our clients to manage clearing activities within the same group, as most major exchanges do. And we maintain excellent relations with the LSE and the LCH SA teams.
What are the financial objectives, taking into account synergies and exceptional costs?
Between 2020 and 2024, we are targeting an average annual increase in revenue of 3% to 4% and Ebitda of 5% to 6%, compared to proforma 2020 levels. Revenue synergies are expected to reach 100 million per year at the end of 2024, knowing that they were carried out for 10.1 million at the end of 2021, eight months after completion of the acquisition. Non-recurring restructuring costs will amount to 160 million, of which 27.6 million have already been recognized in 2021, 50 million in 2022 and the balance in 2023 and 2024.
Given the debt, do you have other acquisition projects?
We intend to maintain an investment grade rating (BBB). Debt is reduced, we have cash. The opportunities to acquire stock exchanges in Europe are fewer and fewer, but we intend to diversify our revenue base. Already, revenues unrelated to transaction volumes have fallen from 44% in 2014 to 55%. This is not enough and we will continue our diversification efforts, including outside Europe. This concerns post-trade services such as clearing but also central depositary activities. We also intend to focus on services for listed companies, where we are active through Company Webcast with 3sens (studio capable of organizing webinars with more than 1,000 people under secure conditions), iBabs (digital governance, circulation of secure documents for boards of directors) and ComplyLog (management of regulated information).
And the provision of financial data?
Our Advanced Data Services activity is also an axis of diversification. We have, for example, created the CAC 40 ESG, the MIB ESG in Milan and the AEX ESG in Amsterdam, for investors wishing to integrate an ESG component. And we are going to launch a new market segment, Euronext Tech Leaders, bringing together European technology companies. This will make it possible to develop specialized financial analysis and simplify the work of investors looking for this type of company. We see an impressive development of unicorns in Europe. Very few of them have gone on the Nasdaq. They must be helped to access the European stock market.
Is the flow of IPOs promising for 2022?
With 212 introductions, 2021 was a record year. When we look at the files in preparation, we are very confident. In particular, we welcome many cleantechs, companies in the green energy and hydrogen sectors. The listing on the Amsterdam Stock Exchange of Universal Music, an American group, among the record for international listings on Euronext in 2021, demonstrated that the Euronext markets are attractive to international companies. the private equity is a natural partner of Euronext, because the funds of private equity must at some point resell, to other funds, to an industrialist or on the stock exchange. They initiate 60% of IPOs.
THE INCONVENIENT QUESTION
How do you react to competition from alternative platforms, which capture 29% of the volumes traded in shares listed on the Euronext markets?
This competition is healthy, it stimulates innovation. As for the “yield” (tariffs of 0.49 basis points on average in the fourth quarter of 2021), it is constantly managed, a bit like the airlines do. We guarantee to brokers the execution of orders at the best possible price. It is on Euronext, and not on the other platforms, that IPOs take place. And we have the largest liquidity with the largest pool of European liquidity among stock exchanges. The participants on Euronext have varied profiles, whereas, on the platforms, in March 2020, everyone was selling at the same time.