Cboe Global to Buy BIDS Trading, Boost U.S. Equity Segment

Zacks Equity Research
·5-min read

Cboe Global Markets, Inc. CBOE is set to acquire BIDS Trading, a registered broker dealer and the operator of the BIDS Alternative Trading System (ATS) for an undisclosed amount. The transaction is expected to close in early 2021, pending regulatory review and other customary closing conditions. Transaction terms were not made public.

Cboe Global intends to fund the acquisition through debt.

About BIDS Trading

Founded in 2006, BIDS Trading, L.P. was designed to foster competition and to resolve existing inefficiencies that have impeded trading blocks of shares. It is a leading block venue in U.S. and European equities, designed to minimize information transfer and opportunity cost while maximizing liquidity.

BIDS Trading was formed by a consortium of banks to create a highly liquid, low-cost, industry sponsored, service for block traders.

The company’s highly regarded software, BIDS Trader, has extensive buy-side channel distribution via seamless integration with buy-side traders’ Order and Execution Management Systems (OEMS). It allows users to place orders in the BIDS ATS that take full advantage of available liquidity and order features, as easily as possible as well as provides one-click, direct access to BIDS ATS, through a single point of entry. It has a global client base of 452 global investment managers.

BIDS Trading generated about $42 million in net revenue in trailing twelve months ending Jun 30, 2020

Rationale Behind the Deal

The acquisition is expected to provide Cboe Global with a meaningful presence in the substantial off-exchange segment of the U.S. equities market. It will complement and expand the spectrum of equity trading products, services and solutions available from Cboe Global’s businesses to enhance customers’ trading experience.

BIDS Trading’s proven block trading capability will provide Cboe Global with a significant foothold in the off-exchange segment of the U.S. equities market, which now accounts for more than 40% of overall U.S. equities trading volume. Cboe Global will be able to further diversify and expand equities trading offering.

BIDS Trading’s differentiated network of global buy-side investment managers and sell side constituents provide the foundation to extend its existing partnership with Cboe Global to new geographies and asset classes. Operating and servicing dark pools and internalization represent opportunities for Cboe Global to grow revenues.

The acquisition is expected to be immediately accretive and contribute 5-6 cents to adjusted earnings per share in 2021.

The acquisition provides an opportunity to build on the successful partnership between Cboe Global and BIDS Trading, which began in 2016 with the launch of Cboe Large in Scale (Cboe LIS). It was designed to deliver BIDS innovative trading model in the European markets under the Bats Europe RIE (Registered Investment Exchange) umbrella. Presently, it is one of the largest block trading platforms in Europe, with average daily volume of approximately €240 million.

The ownership of BIDS Trading will provide additional opportunities to expand Cboe Global’s presence in North American equities.

Cboe Global Markets is one of the world’s largest exchange holding companies, offering cutting-edge trading and investment solutions. It operates four U.S. equities exchanges – the BZX Exchange, BYX Exchange, EDGA Exchange, and EDGX Exchange, through which it offers four unique pools of liquidity.

In U.S. listed equities, Cboe Global is the third largest exchange operator, with a market share of 16.3% of the overall U.S. equities market in 2019.

Higher volumes in the U.S. Equities contribute to the revenue growth and liquidity payments of the company. Higher average daily volume (ADV) in U.S. Equities market contribute to transaction fee while routed trades in the U.S. Equities segment contribute to routing and clearing fees. In the first half of 2020, revenues in the U.S. Equities segment increased 62.2% to $964.2 million.

Inorganic Growth Story

Cboe Global boasts a compelling inorganic growth story given its prudent acquisitions. Recently, Cboe Global acquired Trade Alert to provide real-time data, market information and alerts to customers while agreeing to buy MATCHNow from Virtu Financial VIRT to venture into the Canadian market.

Apart from gaining competitive edge by diversifying as well as adding capabilities, strategic acquisitions diversify Cboe Global’s business mix as well as help in achieving expense synergies.

Shares of this Zacks Rank #4 (Sell) stock exchange operator has underperformed the industry in the past year. The stock has lost 28.9% against the industry’s increase of 0.1%. Nevertheless, its diversified product portfolio and strong liquidity position should drive the stock going forward.

Stocks to Consider

Some better-ranked stocks from the same industry include Equitable Holdings EQH and Moody’s MCO, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Equitable Holdings surpassed estimates in three of the last four quarters, with the average earnings surprise being 13.79%.

Moody’s surpassed estimates in each of the last four quarters with the earnings surprise being 13.81%, on average.

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