LSEG’s data hunt unearths excessive caution
BREAKINGVIEWS-LSEG’s data hunt unearths excessive caution The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, Oct 14 (Reuters Breakingviews) - In boom times, investors cheer bold M&A. Not so much in the UK. Earlier this year shareholders in $244 billion AstraZeneca AZN.L fretted at news of talks with Bristol Myers Squibb BMY.N. Now it’s London Stock Exchange Group’s LSEG.L turn. On Tuesday, the data to analytics group suffered a near $4 billion peak-to-trough daily decline after it confirmed it is in talks to buy credit specialist Octus, which is more than the deal is worth. Here at least, the angst looks overdone.
Talk of a deal comes at a sensitive time for Chief Executive David Schwimmer. His $53 billion company’s shares are down by over a quarter since the start of 2025, as investors have started to worry that AI models will disrupt subscription services, such as the desktop product through which LSEG sells financial data to professionals. On top of that activist Elliott has turned up as a shareholder.
More M&A might not seem the obvious answer. After all, LSEG’s last big data deal, the purchase of Refinitiv, once part of Breakingviews parent Thomson Reuters TRI.TO, increased its exposure to the business that is now causing investor angst. Paying all cash might also limit the possibility of a very large share buyback while LSEG’s shares are cheap. Citi analysts estimate the group could still buy back perhaps $2 billion worth of shares next year.
Octus wouldn't be cheap. The group provides data, news and legal analysis into the world of credit, including private credit, which is growing rapidly. Morgan Stanley analysts peg the $3.5 billion purchase price is just over 9 times the target’s 2025 sales. That’s below the 10 times average of previous transactions, such as BlackRock’s BLK.N purchase of Preqin, but far above LSEG’s own multiple of less than 6 times, per Visible Alpha. The deal will therefore need Octus to sustain it’s double-digit percent growth rate over many years in order to generate an attractive return and survive any debt market fallout when the credit cycle turns.
Buying back shares would no doubt be easier. Still, owning hard-to-find content should make LSEG’s products more attractive in a world where AI models can easily gobble up public data, and enable more sophisticated analysis for the group's customers. Private credit data could also help LSEG's FTSE Russell unit develop new indexes, Citi reckons. The recent share price decline means that the group's stock has lately assigned little value to the Workflows unit that houses LSEG’s desktop product, and accounts for around a fifth of revenue. A little AI-proofing should ease some of shareholders' heebie-jeebies.
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CONTEXT NEWS
London Stock Exchange Group said on October 13 it is in talks to buy credit specialist Octus Intelligence for $3.5 billion.
LSEG shares fell 5% versus the previous day’s close, and were down a further 1.6% on October 14, at 8,212 pence.
(Editing by Aimee Donnellan; Production by Streisand Neto and Oliver Taslic and Streisand Neto)
((For previous columns by the author, Reuters customers can click on UNMACK/neil.unmack@thomsonreuters.com))