Opening Cross: Beyond Evaluations, Will Buyout Put Interactive Data on ICE?

If ICE is most interested in IDC's evaluated pricing business, what happens to the rest of the data vendor?

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Last week’s acquisition of Interactive Data by Intercontinental Exchange came as something of a surprise to the data world: It’s not entirely unexpected that private equity owners Silver Lake Partners and Warburg Pincus wanted to divest the data vendor after a five-year investment—after all, IDC was ostensibly preparing to go public, and there had been persistent rumors that the company was for sale—but rather that ICE was willing to pay a premium to take IDC off the market.

After all, ICE had only just divested one data business—the former NYSE Technologies arm of the New York Stock Exchange, claiming that ICE didn’t want to be in businesses that it didn’t understand—and only recently acquired another in the form of SuperDerivatives, ostensibly to support its clearing operations.

So perhaps surprisingly, ICE has doubled down on data. And with around 40 percent of ICE’s revenues now expected to come from the combination of its proprietary data plus IDC’s revenues, “this makes ICE a data company,” says Brad Bailey, research director in Celent’s securities and investments group.

In fact, according to Burton-Taylor International Consulting, the deal makes ICE the third-largest data vendor, behind Bloomberg and Thomson Reuters. Both Bailey and Burton-Taylor founder and managing partner Douglas Taylor highlight IDC’s fixed income pricing and valuation capabilities as an asset that will help ICE move into over-the-counter marketplaces as the electronification of these markets continues. This begs the question of what ICE will do with the rest of IDC, and whether it overpaid to get what it wanted.

At $5.2 billion compared to IDC’s $939 million in revenues), ICE certainly paid a premium (though, says Bailey, no higher, percentage-wise, than other recent acquisitions), but whether or not it overpaid will depend on how much value it can extract long-term. ICE’s management team isn’t stupid, and if there’s one thing we’ve learned from ICE’s steady rise, it’s that ICE doesn’t waste money on trophy acquisitions: it gets what it wants, and leverages each acquisition to the fullest to strengthen its core business—its exchange—an approach that now sees it overtake CME Group by revenue, according to figures from Burton-Taylor. That said, with clearing, OTC markets and now even more data distribution capabilities, is ICE’s core business really operating an exchange, or is that just the prerequisite for these other profit centers?

Taylor notes that although Nasdaq is smaller than ICE, its revenue is much more diverse, and suggests that “after [IDC’s] $1 billion in market data revenue is added, you can see how ICE could be moving in the direction of Nasdaq to service more segments of the industry.”

And while it occurs to me that ICE may well simply repackage and sell off any of the IDC business lines that it doesn’t want (perhaps even including some elements of SuperDerivatives, which it bought last year) to create a streamlined version of IDC, Taylor and Bailey both suggest the exchange may want to retain as much of the IDC footprint as possible to give it a “captive audience” for new data products. “It’s not hard to see new exchange data products generating new revenue from the IDC client base,” Taylor says.

This may put ICE in competition with Bloomberg, Thomson Reuters and Markit, among others, notes Taylor. And indeed, some end users expressed concern about the impact on vendor competition, and whether IDC and its clients—versus clients of other vendors—would gain some advantage under ICE ownership. However, Bailey questions what impact this would have on existing relationships with vendors and its overall distribution. ICE still needs those distribution channels—unless it plans to turn IDC into its exclusive distribution vehicle, which would hark back to some of the exclusive deals that made Telerate famous (for a while).

So the question is, does ICE want to be in the data vendor business, or does it just want control over datasets that it believes will be big revenue-generators? My money’s on the latter. 

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