US-based private equity firm General Atlantic has acquired a 7.5% stake in pricing and valuations supplier Markit, which is currently majority owned by a consortium of sell side and buy side firms, in return for a US$250 million investment in the company. A spokesperson from Markit confirms the details of the deal, which values the rapidly expanding data and post-trade services provider at around US$3.3 billion, to Reference Data Review.
According to the spokesperson, General Atlantic’s investment in Markit, will not affect the vendor’s day to day operations, but the private equity firm will support Markit’s strategic growth and it will benefit from General Atlantic’s “deep knowledge” of the financial services industry. “Markit has a strong, stable and long term focused capital partner with General Atlantic. The investment will enhance Markit’s ability to plan for future growth through acquisition and internal expansion,” the spokesperson confirms.
As part of the deal, General Atlantic CEO Bill Ford has bagged a seat on the vendor’s board. Ford is seemingly keen to jump on the business opportunity posed by data and post-trade services in the current environment, where firms are being compelled to spend their restricted budgets on systems to meet increased regulatory requirements. The vendor’s focus on data and automation in the OTC derivatives post-trade arena, in particular, has positioned it favourably against a background of intense regulatory and client scrutiny. After all, global regulators are keen to move all these OTC trades onto electronic trading and clearing platforms in order to reduce counterparty risk in the market as a whole.
“Bill joining Markit’s board was a very important part of the transaction for Markit,” explains the spokesperson. “He has been an active investor in the global financial services industry for decades. Notable investments include E*trade, Archipelago Exchange (NYSE Euronext), Nymex (CME), BM&FBovespa and Saxo Bank.”
Part of the appeal for the private equity firm will be that Markit has demonstrated tremendous growth since it was founded nine years ago by a group of executives led by Lance Uggla. Several years later, a number of financial institutions were also compelled to buy stakes in the company, including both buy side and sell side institutions. The vendor has also been fairly acquisitive during this time, including acquiring electronic trade confirmation network provider SwapsWire and trade reporting platform Boat, both in 2008. Last September also saw the launch of its joint venture with the Depository Trust & Clearing Corporation (DTCC) to provide OTC derivative trade processing via its new MarkitServ platform.
According to the spokesperson, the transaction was not done with any particular acquisition in mind. “Markit reviews acquisition opportunities on a strategic and opportunistic basis,” the spokesperson elaborates.
General Atlantic has known Markit since 2005, continues the spokesperson, and recognises the firm as a “growing and innovative company”. Markit, in turn, recognises General Atlantic’s leading position as a value added investor in the global financial services market. “Markit will benefit from General Atlantic’s global network, deep experience in financial services, focus on growth and scaling companies as well as its long term focus on building market leaders. The two firms have a shared vision and General Atlantic’s experience as a long term growth investor will help continue to grow Markit’s business over the coming years.”
However, Markit’s ownership structure has been subject to market speculation since the US Department of Justice investigation opened an investigation into its business practices last year, with observers wondering whether the probe may incite its sell side and buy side owners to distance themselves from the highly successful data vendor. The department’s Antitrust Division indicated last August that the vendor was under investigation but failed to elaborate on the details. It has been assumed that he US investigator is seeking to determine whether the bank owners of Markit have been afforded unfair access to price information, as well as investigating its practices as a whole in the credit derivatives clearing, trading and information services industries.
The investment by General Atlantic therefore appears to dilute the holdings of the group of financial institutions that owns Markit, which is believed to include investment banks Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Dresdner Kleinwort/Commerzbank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Nomura, TD Securities and UBS, as well as three buy side firms.
It isn’t clear whether the sale to General Atlantic signals an appetite for further divestment for the group. Another major bank operated entity, the Turquoise multilateral trading facility (MTF), has sold a 60% stake to the London Stock Exchange in a sign that banks may be seeking to reduce their investments in non-core business.
For now, the General Atlantic investment will be used to assist Markit in developing its growth strategy further, according to the vendor. Markit may have made its name in the derivatives arena but it has been extending its ambitions to many other corners of the market over the last couple of years. It is likely that more investment will be poured into its valuations offering, in particular its multi-bank, cross-asset client valuations platform, which was launched with much fanfare in February last year.
The vendor has also expended a lot of time and energy in getting its document management platform, Markit Document Exchange, off the ground. Last year for example, Markit teamed up with OTC derivatives documentation specialist DocGenix to create a single platform for the management of complex legal agreements.
In terms of the Greenwich-based private equity firm’s credentials: it combines a collaborative global approach with a long term investment horizon. It manages approximately US$15 billion in capital and has more than 75 investment professionals based in Greenwich, New York, Palo Alto, London, Düsseldorf, Hong Kong, Beijing, Mumbai and Sao Paulo.
Ford explains: “We’ve always tried to identify areas that will go through consolidation. In the last decade we got involved with the exchange space believing there was opportunity both in going electronic and in consolidation. Now we think the same is true in the market data and post-trade areas. Markit has got a lot ahead of it in terms of organic growth, given what’s going on, and in terms of acquiring more businesses and building an even broader platform.”
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