Euronext NV expects to be able to close the acquisition of Borsa Italiana SpA from the London Stock Exchange Group PLC in the first half of 2021 and release new medium-term financial targets for the group in the fourth quarter, CEO Stéphane Boujnah said Feb. 10.
The deal is still pending regulatory approvals in several jurisdictions, a declaration of non-objection from Euronext's College of Regulators, and approval of Euronext as a suitable purchaser by the European Commission. However, some key steps toward the transaction's completion have been made in recent months, including the completion of London Stock Exchange's takeover of Refinitiv US Holdings Inc. on Jan. 29.
The acquisition of Borsa Italiana will be "transformational" for Netherlands-based Euronext and further enhance the "significant diversification into new asset classes and new revenue models" the pan-European exchange operator has achieved since its last strategy update in October 2019, Boujnah told press at a presentation of the group's 2020 earnings.
In 2020, Euronext's net income rose by 42.1% year over year to €315.5 million and group revenues increased by 30.2% to €884.3 million. EBITDA grew 30.2% to €520 million with a stable EBITDA margin of 58.8%.
Despite a 30.2% increase from a year ago to €364.3 million, the group's 2020 operating expenses excluding depreciation and amortization were in line with the group's previous guidance.
New targets
Thanks to the strong performance in 2020, Euronext has managed to achieve the financial targets set in 2019 two years in advance, and given the pending acquisition of Borsa Italiana, the group plans to announce new 2024 group guidance later this year, Boujnah said.
Previously, Euronext aimed to achieve organic revenue growth of 2% to 3% per year, organic EBITDA margin of over 60% and a dividend payout ratio of 50%. Driven by an improved market position and increased post-trade activity, organic revenue in 2020 was €831 million versus the expected €826 million for 2022. On the back of continued cost discipline, organic EBITDA in 2020 stood at 60.5%, in line with the 2022 target, Euronext said in its earnings statement Feb. 10.
Euronext will not provide revenue guidance for 2021 as this will be a transition year for the group, Boujnah said. After the closing of the Borsa Italiana acquisition, Euronext will provide new 2024 group guidance for the combined company in October or November, he said. On a pro forma basis, combined revenues are estimated at about €1.3 billion and EBITDA at slightly more than €800 million, Boujnah said.
"But this is not a guidance. It is just a retrospective pro forma picture for the sake of helping investors to assess the combined entity," the CEO said.
Deal benefits
"Once the transaction is completed, Italy will become the largest revenue contributor of the group," Boujnah said. "Italy will be represented at every level of the group and Italian voices will be heard at every single level where operational and strategic discussions and decisions are taking place within Euronext."
Euronext aims to make Borsa Italiana a fully integrated part of its pan-European franchise just like the company is now a fully integrated part of the London Stock Exchange Group, Boujnah said. However, there will be "material differences" for the Milan-based exchange, which today is a small asset in the London Exchange Group but tomorrow will become the largest asset of the Euronext group, he said.
Euronext has already demonstrated its strong integration skills, having achieved more than half of the targeted synergies for both of its most recent acquisitions, the group said. As of Dec. 31, 2020, Euronext booked €8.4 million run-rate cost synergies from the acquisition of Oslo Børs VPS Holding ASA, equal to roughly 70% of targeted synergies 18 months since the deal's completion. The group booked €4.3 million, or nearly 60% of the targeted run-rate cash cost synergies, from the acquisition of Denmark-based VP Securities A/S five months since the transaction was completed.
As a result of synergy extraction and cost control, Euronext expects a mid-single-digit percentage decline in its operating costs excluding depreciation and amortization in 2021 from the annualized fourth-quarter 2020 figure of €420.4 million, Boujnah said.
