Cboe Buys Chi-X Asia Pacific to Expand Into Japan, Australia

Joanna Ossinger and Nabila Ahmed, Bloomberg News

People walk into a subway station in the Shibuya district in Tokyo, Japan, on Saturday, April 25, 2020. Prime Minister Shinzo Abe extended an emergency declaration nationwide last week. That lets local governments issue directives urging people to stay at home, although there are no penalties for non-compliance. Photographer: Soichiro Koriyama/Bloomberg , Bloomberg

(Bloomberg) -- Cboe Global Markets Inc. agreed to buy Chi-X Asia Pacific Holdings Ltd. from private equity firm J.C. Flowers & Co. LLC, expanding the exchange’s reach into Japan and Australia.

Cboe will use the acquisition to build its global equities business in the region and boost investor access to its offerings, including proprietary products. Chi-X Australia is the main competitor with ASX Ltd. in equity trading and exchange-traded funds. Chi-X Japan offers trading services for Japanese stocks.

“There’s a uniformity we’re building across the globe,” Cboe CEO Ed Tilly said in an interview on Thursday. “The geographic expansion is key to us. If a region is open for competition, we really are looking to be there -- and looking to be there in scale.”

The terms of the deal, which is expected to close in the second or third quarter pending a regulatory review, weren’t disclosed, according to a Cboe statement on Wednesday.

Cash Transaction

Cboe will fund the transaction with cash on hand, supplemented by existing credit agreements if needed, according to the statement. The purchase price is not material from a financial perspective and is expected to be nominally accretive to the company’s adjusted earnings in 2021, it said.

Cboe had expressed an interest in the operations in 2016, and the parties discussed a deal valuing the business at about $80 million, according to a person with knowledge of the matter who asked not to be identified because the talks were private. Instead, Chi-X Global Holdings sold Chi-X Australia, Chi-X Japan and technology services business Chi-Tech Hong Kong to J.C. Flowers.

J.C. Flowers decided to sell the Chi-X unit after being approached by a North American exchange last year, according to Vic Jokovic, chief executive officer of Chi-X Australia. The business attracted interest from a range of exchanges around the world, including Nasdaq Inc. and TMX Group Ltd., which runs the Toronto Stock Exchange, he said in an interview on Thursday. The Australian business has about 17% market share and “there’s no reason why we can’t grow that to about 20%,” Jokovic said.

David Howson, president of Cboe’s European operations, will become president of Europe and Asia-Pacific and will lead Cboe’s expansion into the region. Cboe will need regulatory approval from Australia and Japan to complete the deal. Starting from scratch would take a decade, Howson said in an interview, and this deal allows Cboe to simply take on a “top-notch” existing business.

As for any future acquisitions, “our eyes are always open,” Tilly said. “We’re always interested in this type of expansion.”

(Updates with context and comments from Cboe and Chi-X Australia officials.)