After the successful acquisition of the Big Board - NYSE
Euronext Inc. last week,
IntercontinentalExchange Group Inc.
) is now eyeing Asia with its announced intention to buy
Singapore Mercantile Exchange (SMX). The all-cash deal worth $150
million is expected to culminate before the end of 2013, upon
receipt of regulatory approvals.
Based out of Singapore, SMX is an over 3-year old futures
exchange that is run under the flagship of Financial Technologies
India Ltd. (FTIL) and is regulated by the Monetary Authority of
Singapore (MAS). SMX trades through a diverse asset class,
including metals, currencies, energy and agricultural
commodities. Trading volumes of SMX totaled about $134 billion at
The 100% stake acquisition also includes SMX's clearing wing -
SMX Clearing Corporation (SMXCC). Given that the operations of
SMX are in line with that of ICE's, this purchase should boost
the latter's operating and competitive efficiencies.
While NYSE has expanded ICE's market capitalization by over
60% to around $23 billion now, the expanded business faces
adversities of the challenging equity markets in the US. Hence,
SMX futures trading and clearing operations should help mitigate
this operational risk, and at the same time boost ICE's global
The deal further extends ICE's growth curve and amplifies its
global business opportunities. While obtaining a trading license
in Singapore ideally takes anything between 2 and 3 years, ICE
will gain a direct and swift entry in the rapidly growing
financial hub of Asia - Singapore, primarily within commodities.
The company already has clearing platforms in the US, UK,
continental Europe, Brazil as well as Canada. The SMX will
further strengthen the company's global footprint.
On the other hand, the acquisition also blends well with the
business plans of FTIL, which intends to pay off its debt from
the proceeds. The Mumbai, India-based FTIL has been facing
liquidity problems after the country's regulators shut down a
spot commodity exchange in India in Jul 2013.
Overall, ICE's strategic acquisitions and the expected cost
savings to be generated from these activities reflect the
company's prudent management and a strong capital position.
Conversely, these large-scale developments also raise risks
related to integration and a higher debt level. Hence, we remain
on the periphery to analyze the developments of the merged
organization going forward.
ICE presently carries a Zacks Rank #3 (Hold). However,
outperformers in the financial industry include
FleetCor Technologies Inc.
Brookfield Asset Management Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
BROOKFIELD ASST (BAM): Free Stock Analysis
FLEETCOR TECH (FLT): Free Stock Analysis
INTERCONTNTLEXC (ICE): Free Stock Analysis
KEMPER CORP (KMPR): Free Stock Analysis
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