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Cboe Global (CBOE) to Expand in Canada With Aequitas Buyout

Cboe Global Markets CBOE has agreed to buy Aequitas Innovations, Inc. in a bid to strengthen its presence in North America. The addition of Aequitas Innovations, also known as NEO, will help the acquirer offer Canadian equities.  The buyout, pending approvals, is expected to see light in first-half 2022.

About Aequitas Innovations or NEO

Aequitas Innovations is a fintech organization, comprising a fully registered Tier-1 Canadian securities exchange with diverse products and services, ranging from corporate listings to cash equity trading.

The NEO Exchange is a Toronto-based Canadian stock exchange operator with operations ranging from listings, trading to market data.

The NEO Exchange has three market models: NEO-L, a make-take model; NEO-N, an inverted model and NEO-D, a darkpool.  NEO also operates a distribution platform for unlisted securities, NEO Connect and an automated workflow supporting private placements via DealSquare, a NEO Connect partner.

Financing the Deal

Though financial details have not been disclosed, Cboe Global intends to deploy cash on hand and debt to fund the transaction.

Rationale Behind the Transaction

The acquisition, complementing Cboe’s equities business, is expected to help it gain a foothold in a key capital market and to build on a comprehensive equities platform for the Canadian market.

The NEO Exchange along with MATCHNow (the alternative trading system acquired by Cboe Global in August 2020) will help offer a compelling Canadian equities portfolio, market data feeds, access services, and listings and distribution services for non-listed securities.

As a result, trading activity and efficiencies are expected to improve. Opportunities for investors and capital-raisers in Canada and the United States are expected to rise.

Ed Tilly, Chairman, President and CEO of Cboe Global Markets stated that "Adding NEO to the Cboe network better enables us to create a first-class equities offering in Canada, bolstering our global markets in North America, Europe and Asia Pacific, and bringing us one step closer to our vision of building one of the world's largest global derivatives and securities trading networks.”

Adding NEO to its portfolio will also broaden Cboe Global options exchange’s North American equities business.

The acquisition is in tandem with Cboe Global’s strategy to accelerate geographic and asset class presence, while expanding customer reach. CBOE, boasting one of the world’s largest exchange holding companies, already has U.S. and European presence, covering many of the world’s largest equities marketplaces.

Exchange operators have always looked to ramp up growth in Canada. Nasdaq NDAQ gained direct access to the Canadian equities market via Chi-X Canada, expanding its equities trading business beyond the Nordics and the United States.

Acquisitions have also helped Nasdaq expand technology offering, fortify its Corporate Solutions business and improve its market surveillance techniques.

Inorganic Growth Story

Cboe Global boasts a compelling inorganic growth story. Acquisitions have expanded and diversified CBOE Global Markets’ product portfolio with U.S. and European cash equities, Global ETPs and Global FX, solid pan-European equities and global FX positions apart from strengthening its service portfolio.

Besides giving Cboe Global a competitive edge by diversifying as well as adding capabilities, strategic acquisitions diversify the company’s business mix as well as help in achieving expense synergies.

Cboe Global estimates net revenue contribution from recent acquisitions in the range of 4% to 6%.

Cboe Global has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

Some other top-ranked players in the same industry include OTC Markets Group OTCM and Intercontinental Exchange ICE.

Sporting a Zack Rank #1 (Strong Buy), OTC Markets Group witnessed the Zacks Consensus Estimate for 2021 and 2022 move up 4.6% and 7.4% in the last seven days. The expected long-term earnings growth rate is pegged at 9%, in line with the industry average.

The Zacks Consensus Estimate for 2021 and 2022 earnings of Intercontinental Exchange, carrying a Zacks Rank #2, imply 13.1% and 8.5% year-over-year growth, respectively.

Price Performance

Shares of Cboe Global have gained 42.4% year to date, outperforming the industry’s increase of 36.7%. Solid fundamentals like a diversified product portfolio and strong liquidity position should continue to drive the stock going forward.

Image Source: Zacks Investment Research

Shares of Nasdaq, OTC Markets Group and Intercontinental Exchange have gained 58%, 71.3% and 17.3%, respectively, in the same time frame.  


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