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CBOE Holdings Buys Bats Global, Moody's Jumps into Action
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CBOE Holdings Inc. (CBOE - Free Report) recently announced that it has closed the Bats Global Markets buyout for $3.4 billion. The acquisition, which was announced in Sep 2016, will help CBOE Holdings address the increasing demand for index-based investing market.
Shares of CBOE Holdings gained 7.31%, outperforming the Zacks categorized Securities Exchange’s gain of 5.59% year to date. With optimism surrounding this acquisition, we expect the stock to move higher.
Rating Action from Moody’s
Following the aforesaid announcement, Moody’s Investor Service – a wing of Moody’s Corp. (MCO - Free Report) – assigned Baa1 ratings to CBOE Holdings’ $1.0 billion term loan credit agreement and $650 million 3.65% senior notes scheduled to mature in 2027 with a stable outlook.
According to Moody’s, the company had borrowed $1.65 billion to fund the cash portion of the $3.4 billion transaction and to refinance Bats Global's existing debt.
Notably, this is the first time CBOE Holdings had debt in its balance sheet. However, the company hinted at plans to de-lever its balance sheet following the closure of the takeover. Hence, Moody’s believes that the buyout will help CBOE Holdings to improve its debt leverage and interest coverage ratios. The rating agency, however, remains wary of the risks involved in the acquisition integration process. Nonetheless, the stable outcome reflects Moody's anticipation of smooth integration and de-leverage activities.
Moody’s stated the rating might be downgraded in case of unfavorable developments due to integration, the company’s inability to attain or maintain debt leverage of 2.5x within 12 months or trading volumes and if transaction revenues decrease. However, the ratings may be upgraded if debt/EBITDA remains below 2x, CBOE Holdings achieves the projected benefits from the acquisition, and its organic growth remains stable.
Benefits from the Integration
The acquisition of Bats Global will expand and diversify CBOE Holdings’ product portfolio through the addition of U.S. and European cash equities, Global ETPs and Global FX. The combined entity will not only offer industry-leading market data products and services but will also enjoy a compelling global distribution network. This apart, the acquisition will expand CBOE Holdings global reach with solid pan-European equities and global FX positions. The acquirer’s business mix would also be diversified as the deal will open up non-transactional revenue generating avenues.
CBOE Holdings is estimated to achieve $50 million in annualized expense synergies within three years of the acquisition. The metric is expected to increase to $65 million within five years of the closure of the transaction. The acquirer expects to achieve the synergies through its shift to a single proprietary trading platform and by optimizing the expense structure of the combined entity.
On the other hand, Bats Global shareholders stand to gain from immediate cash value as well as an opportunity to boost growth by leveraging CBOE Holdings’ expertise.
The transaction will be accretive to the acquirer’s bottom line in the first year post the closure of the acquisition. It will also help the company generate solid returns on invested capital.
Following the integration, Chris Concannon, who was formerly the CEO of Bats Global Markets, will become the President and COO of CBOE Holdings.
Acquisitions Ramping Growth Profile
CBOE Holdings, like other industry peers, has been facing intense competition as increased market consolidation tends to reduce market share and leverage of business. Hence, strategic acquisitions like the one mentioned above are expected to help the securities exchange retain its market share. Also, the industry is trying to counter soft trading volumes and margin contraction with more consolidations. Other securities exchange bigwigs like Nasdaq Inc. (NDAQ - Free Report) and Intercontinental Exchange Group Inc. (ICE - Free Report) have also undertaken strategic acquisitions to ramp up their growth.
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CBOE Holdings Buys Bats Global, Moody's Jumps into Action
CBOE Holdings Inc. (CBOE - Free Report) recently announced that it has closed the Bats Global Markets buyout for $3.4 billion. The acquisition, which was announced in Sep 2016, will help CBOE Holdings address the increasing demand for index-based investing market.
Shares of CBOE Holdings gained 7.31%, outperforming the Zacks categorized Securities Exchange’s gain of 5.59% year to date. With optimism surrounding this acquisition, we expect the stock to move higher.
Rating Action from Moody’s
Following the aforesaid announcement, Moody’s Investor Service – a wing of Moody’s Corp. (MCO - Free Report) – assigned Baa1 ratings to CBOE Holdings’ $1.0 billion term loan credit agreement and $650 million 3.65% senior notes scheduled to mature in 2027 with a stable outlook.
According to Moody’s, the company had borrowed $1.65 billion to fund the cash portion of the $3.4 billion transaction and to refinance Bats Global's existing debt.
Notably, this is the first time CBOE Holdings had debt in its balance sheet. However, the company hinted at plans to de-lever its balance sheet following the closure of the takeover. Hence, Moody’s believes that the buyout will help CBOE Holdings to improve its debt leverage and interest coverage ratios. The rating agency, however, remains wary of the risks involved in the acquisition integration process. Nonetheless, the stable outcome reflects Moody's anticipation of smooth integration and de-leverage activities.
Moody’s stated the rating might be downgraded in case of unfavorable developments due to integration, the company’s inability to attain or maintain debt leverage of 2.5x within 12 months or trading volumes and if transaction revenues decrease. However, the ratings may be upgraded if debt/EBITDA remains below 2x, CBOE Holdings achieves the projected benefits from the acquisition, and its organic growth remains stable.
Benefits from the Integration
The acquisition of Bats Global will expand and diversify CBOE Holdings’ product portfolio through the addition of U.S. and European cash equities, Global ETPs and Global FX. The combined entity will not only offer industry-leading market data products and services but will also enjoy a compelling global distribution network. This apart, the acquisition will expand CBOE Holdings global reach with solid pan-European equities and global FX positions. The acquirer’s business mix would also be diversified as the deal will open up non-transactional revenue generating avenues.
CBOE Holdings is estimated to achieve $50 million in annualized expense synergies within three years of the acquisition. The metric is expected to increase to $65 million within five years of the closure of the transaction. The acquirer expects to achieve the synergies through its shift to a single proprietary trading platform and by optimizing the expense structure of the combined entity.
On the other hand, Bats Global shareholders stand to gain from immediate cash value as well as an opportunity to boost growth by leveraging CBOE Holdings’ expertise.
The transaction will be accretive to the acquirer’s bottom line in the first year post the closure of the acquisition. It will also help the company generate solid returns on invested capital.
Following the integration, Chris Concannon, who was formerly the CEO of Bats Global Markets, will become the President and COO of CBOE Holdings.
Acquisitions Ramping Growth Profile
CBOE Holdings, like other industry peers, has been facing intense competition as increased market consolidation tends to reduce market share and leverage of business. Hence, strategic acquisitions like the one mentioned above are expected to help the securities exchange retain its market share. Also, the industry is trying to counter soft trading volumes and margin contraction with more consolidations. Other securities exchange bigwigs like Nasdaq Inc. (NDAQ - Free Report) and Intercontinental Exchange Group Inc. (ICE - Free Report) have also undertaken strategic acquisitions to ramp up their growth.
Zacks Rank
CBOE Holdings currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>