The EconomistAugust 3rd 2019 Finance & economics 591A
round 2am, as the London Stock Ex-
change Group (lse) hammered out an
agreement with Blackstone to buy Refini-
tiv, a data-provider, mice scurried out of
the corners. Unfair tactics, quipped the
Blackstone side. But the American private-
equity firm still struck a superb deal. On
July 27th the lsesaid it would buy Refinitiv
(including its debt) for $27bn in shares.
Blackstone has doubled its money in ten
months after buying 55% of the data firm in
a consortium last year.
The prospect of a 321-year-old British
champion shaking off the Brexit gloom to
buy a big international firm caused much
glee in London. On July 29th the lse’s
shares closed up 15% on the day. Refinitiv’s
sales span most asset classes, with three-
fifths coming from North America and
Asia. “The London Stock Exchange is turn-
ing away from Europe and endorsing Glo-
bal Britain,” crowed one commentator.
Truth be told, the lsemight still have
snapped up Refinitiv had the referendum
of 2016 gone the other way. The rationale is
clear. Several years ago it pivoted from list-
ings towards selling financial-markets
data and analytics, for which demand is vo-
racious. And Refinitiv is the owner of Eikon
data terminals, used by traders and fund
managers, and Elektron, a data-feed busi-
ness. Other stock exchanges have seen the
same opportunity: in 2015, for example,
ice, the owner of the New York Stock Ex-
change, bought Interactive Data for $5.2bn.
Yet the lse’s purchase is bigger and
therefore riskier. It is buying a complex
conglomerate with earnings before inter-
est, tax and depreciation of $1.6bn last year,
against the lse’s $1.4bn. Refinitiv’s head-
count of 18,500 far exceeds the lse’s 4,600.
According to Keefe, Bruyette & Woods
(kbw), an investment bank, in 2018 Refini-
tiv would have contributed 70% of the
combined firm’s revenues and 55% of oper-
ating profit, based on pro forma numbers.
The deal will ensure that the lse is “well
positioned for future growth”, said David
Schwimmer, its boss since last August. It
was broadly well received, but analysts will
have questions about the price, the quality
of the asset and what the lse will do with it.
Last year Blackstone and two partners
bought the 55% of Refinitiv (as they re-
named it) from Thomson Reuters at a value
of $20bn. They paid mostly with debt. The
$4bn of equity and preferred debt they put
in is now worth around $8bn on paper. The
lse is assuming about $12bn of net debt,
pushing its leverage much higher.
Blackstone gave Refinitiv a new brand
and took out $350m a year of costs. It used
its clout as a big fee-payer to investment
banks to secure the flotation of Refinitiv’s
Tradeweb platform, which those banks
part-owned, and twisted arms to help Eik-
on. “Complex carve-outs are one of the
things Blackstone private equity does real-
ly well,” says Martin Brand, the Blackstone
executive who did the deals.
It also tried to revive growth at Refinitiv,
which has been stagnant (see chart). In
2018, notes kbw, its revenues were 7% low-
er than in 2012, at $6.3bn. Although some
divisions, including compliance and Elek-
tron, are doing decently, the desktop busi-
ness is shrinking. Traders complain that
Eikon terminals are clunky compared with
those of the market leader, Bloomberg.
So Mr Schwimmer’s bold move will slow
down what has been one of the world’s fast-
est-growing stock-exchange group in re-
cent years. Investors hope that as well as
cutting more costs at its new acquisition,
lse can increase revenues by exchanging
data between Refinitiv and its index and
other business. If it keeps the desktop busi-
ness it will need to say how it will fix it, says
Kyle Voigt of kbw.
Competition authorities in both Europe
and America are sure to look hard at the
deal. European market watchdogs are al-
ready investigating the rising price of fi-
nancial data, which is partly caused by in-
dustry consolidation. If they intervene,
expect much breast-beating about a cruel
continent blocking a bold British deal. 7The London Stock Exchange seeks to
gobble up a global data giant
LSE buys Refinitiv
Terminal value
Globaldesktopcount,’000Analyse this*Includesacquisitions
anddivestituresSource:Burton-TaylorInternational
Consulting,a TPICAPcompanyFinancial market revenues*, 2014-18
Annual average % change
-5 0 5 10 15
Moody ’s Analytics
S&P Global Market
Intelligence
FactSet
Bloomberg
Refinitiv3003403804202013 14 15 16 17 18RefinitivBloombergT
he mittelstand,exports and thrift—
all are matters of German national
pride. Thanks to them Germany has run the
world’s biggest current-account surplus
since 2016, last year just shy of $300bn
(7.3% of gdp). This sign that it saves more
than it invests at home, and sells abroad
more than it imports, has earned the ire of
President Donald Trump, who would like
thrifty Teutons to buy American.
The imf has long wrung its hands at the
savings glut. Last month, in its annual re-
port on global imbalances, it repeated a
warning that Germany’s current-account
surplus was “substantially” stronger than
warranted by economic fundamentals. In a
separate paper it presented evidence that
the growing current-account surplus was
accompanied by increasing inequality (see
chart on next page). The link, it says, is high
corporate profitability.
Around the turn of the millennium Ger-
many’s exports took off, as rapidly growing
emerging economies started to buy its
high-value-added manufacturing goods in
bulk. That, together with stingier welfare
benefits and government policies encour-
aging wage restraint, helped push up pro-
fits. But corporate success did nothing for
poorer households because of a highly un-
equal distribution of wealth.
Germany is one of the most unequal of
the 35 countries in the oecd. The top tenth
of households own 60% of net wealth. The
median household has net wealth of
€61,000 ($68,000), slightly more than the
median for Poland, but less than the medi-
an for Greece and more than a third below
the median for the euro area. The compari-
son may be unduly harsh, since it excludes
pension wealth, which is likely to be large
in Germany. But it reflects the fact that
poorer Germans are less likely to own
houses or shares.
Germany’s corporate wealth tends to be
kept in the family. The country has relative-
ly few listed firms: 60% of corporate assets
belong to privately owned firms. Many are
family-run. Even among the publicly listed
ones two-thirds are family-controlled, and
controlling shareholders hold larger stakes
those than in, say, Britain or Sweden. This
leaves less equity for outsiders.
Higher profits, therefore, mean higher
capital incomes for the already rich. The
imf reckons that the rise in profits, togeth-
er with high wealth inequality, explains
about half the rise in income inequality inThe corporate success of the Mittelstand
comes at a cost: widening inequalityGermany’s unbalanced economyGetting uneven