Toronto-based stock exchange operator NEO Exchange is being acquired by Cboe Global Markets Inc., a much larger Chicago-based exchange company, for an undisclosed amount.
Details of the deal were scant, with Cboe’s chief strategy officer John Deters telling The Globe and Mail the acquisition was “not material from a financial standpoint,” in the context of Cboe’s overall market value of US$14-billion.
NEO chief executive officer Jos Schmitt, who co-founded the exchange in 2015, said the acquisition was in line with his company’s five-year plan to grow its business and enhance competition.
“We started looking at various options of how to accelerate growth. We thought about raising capital, doing an acquisition ourselves, but Cboe emerged at the right time and we felt the acquisition was the ideal scenario for us,” he told The Globe.
This is Cboe’s second Canadian acquisition over the past 18 months. In August, the company bought alternative trading system MATCHNow for US$36.7-million. Mr. Deters said purchasing NEO was part of Cboe’s plan to grow by expanding internationally.
“For us, owning a business with the kind of market share growth that Jos and team at NEO have seen is accretive. We also found NEO’s innovative and customer-first approach appealing to us culturally,” he said.
A statement issued by the two companies on Monday said that by owning MATCHNow and NEO, Cboe would have control over approximately 16.5 per cent of the total market share of public listings in Canada.
NEO was founded six years ago as Aequitas Neo Exchange Inc., an upstart backed by a consortium of financial institutions including RBC Dominion Securities, Barclays and OMERS Capital Markets, with the intention of disrupting the dominance of TMX Group Ltd., which owns the Toronto Stock Exchange and the TSX Venture Exchange.
The launch of NEO coincided with the growth of listings of exchange-traded funds in Canada – at least initially, much of its business was derived from new ETF listings. Over the years, the exchange attracted a flurry of venture companies, particularly those in the cannabis, biotech and cryptocurrency sectors. It currently lists more than 170 public companies, ETFs, special purpose acquisition companies (SPACs) and closed-end funds.
Under Mr. Schmitt’s leadership, NEO developed multiple new listing mechanisms. Some paid off, but others did not. In 2019, the company collaborated with the Vancouver-based venture capital firm Silver Maple Ventures to form DealSquare, a platform that allows securities dealers to list private placements online and distribute shares through NEO’s trading settlement system. DealSquare has 12 listings to date, mostly mortgage funds.
Earlier this year, in an attempt to ride the SPAC wave, NEO launched a public listing vehicle called G-Corp, designed to help mid-sized companies valued at between $50-million and $500-million raise capital on the public markets. It failed to gain traction among investors, with only one company utilizing the vehicle to date.
Mr. Schmitt said he will continue to lead NEO following the takeover, and part of the appeal of being owned by a much larger exchange is that it has significant assets – including separate platforms for derivatives and digital assets. The latter isn’t currently available on any other Canadian stock exchange.
“Cboe has a strong track record of growing its acquisitions into even bigger and better things,” he said.
The Chicago company has been on a massive acquisition spree of late, fuelled by double-digit revenue growth as a result of the accelerated pace of public listings and huge trading volume over the past two years.
In January, Cboe acquired BIDS Trading, the largest independent alternative trading system in the U.S. The company subsequently expanded into Japan and Australia by acquiring the global stock exchange Chi-X Asia Pacific Holdings Inc. Cboe recently re-entered the cryptocurrency space by buying the crypto trading platform Eris Digital Holdings LLC – the Chicago company was the first exchange to list bitcoin futures back in 2017, but exited that market in 2019.
The NEO acquisition is expected to close in the first half of 2022, pending regulatory approval from the Ontario Securities Commission.
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Vanmala Subramaniam