LSE Pays "Fair Price" for Citi Indices

Morningstar analysts are maintaining their £31 per share fair value estimate for the London Stock Exchange, believing it paid a fair price for the Citi businesses

Michael Wong, CPA 1 June, 2017 | 2:53PM

London Stock Exchange (LSE) announced this week that it was acquiring The Yield Book and Citi Fixed Income Indices from Citi, including the World Government Bond Index for $685 million in an all-cash deal. The deal is expected to close in the second half of 2017, with an undisclosed mix of financing from existing cash and credit facilities.

The combined target business generated revenue of $107 million and EBITDA of $46 million. This implies a multiple of EV/EBITDA of 14.9 times, which is taken from a pro forma estimate of the costs to be allocated under LSE’s ownership. Last year, the average multiple for data analytics firms specializing in financial services came in at about 16.1 times EV/EBITDA.

Also for reference, in late 2015, Intercontinental Exchange bought Interactive Data Holdings Corporation at 13.8 times EBITDA, at a deal some observers believe warranted stronger multiples. Given these metrics, we believe that LSE paid a fair price for the deal. Since we estimate that LSE trades at about 17.5 times adjusted EBITDA, the deal will immediately improve this ratio.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
London Stock Exchange Group PLC7,200.00 GBX6.89

About Author

Michael Wong, CPA  Michael Wong is a stock analyst at Morningstar.

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