Case Study and Sample Slides Investment Evaluation Study: Stock Exchanges across Select Countries
Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.
©©2013 GlobalServices Services Inc., rights reserved. Privileged and confidential information of Sutherland Global 2010Sutherland Sutherland Global Inc., All All rights reserved. Privileged and confidential information of Sutherland Global Services Inc. Services Inc.
www.sutherlandglobal.com
Disclaimer
The sample contains excerpts from a study conducted by Sutherland Global Services for a client. the sample may not contain all the pages of the original document. THIS sample has been prepared by Sutherland Global Services, Inc. or its associates or affiliates (“Sutherland Global Services�) exclusively as an illustrative sample only and is sent to authorized recipients solely for the purpose of evaluating Sutherland Global Services' support service capabilities. THIS sample should not be considered as an offer to sell, a solicitation to buy, or an endorsement or recommendation of any company. Sutherland Global Services does not guarantee the accuracy, completeness or other characteristics of the data / information of the report. This Sample may not be reproduced or distributed (in whole or in part) to any third party without the express prior permission of Sutherland Global Services.
Sutherland Global Services may also have (or have had) arrangements with entities whereby Sutherland Global Services receives or is in receipt of information relating to the subject matter of this Sample that is confidential or proprietary to a third party, and hence may not be utilized. Accordingly, Sutherland Global Services may be in receipt of relevant information that is not reflected in this Sample.
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
2
Global: Stock Exchange Industry Client • The client is the Investment Banking Team of a Saudi Arabia-based leading investment bank with assets and customers spread across the GCC region
Project Scope • Sutherland closely assisted the Investment Banking Team within the Client Investment Bank in time-sensitive tasks like: – Providing updates on select stock exchanges along pre-decided parameters – Identifying lucrative investment opportunities, specifically in key stock exchanges across the world – Compiling reliable comparative analysis on recent mergers and acquisitions deals involving key stock exchanges – Providing reliable inputs on valuations for key stock exchanges
Sutherland’s Solution • The SGS team studied all the major stock exchanges across the world for business parameters like: – Industry overview and outlook – Recent strategic developments – Competitive landscape – Mergers and acquisitions trends – Valuations
• Benefits to the Client • Timely reports from the SGS team helped the client in: – Enhancing quality Investment Banking business in the form of increased clientele – Optimizing costs – Enhancing customer satisfaction
© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
3
Industry Overview (1/2)
Stock Exchange Revenue
20
50.0%
16
$ bn
• According to the World Federation of Exchanges (WFE), at the end of December 2007, 56 regulated exchanges operated throughout the world with a total market capitalization of listed equity securities of over $61 tn • Revenues of global stock exchanges reached $15.6 bn in 2006, up by almost 40%, as compared to 2005 – Industry witnessed a CAGR of 17.1% for the period 2002-06 • Key growth drivers: – Shift from floor-based to electronic trading platforms, enhanced technology and regulatory changes both in Europe and the US – Product or new market expansion – Increased globalization and resultant capital needs – Sophisticated investors (hedge funds, foreign institutional investors) scouting for alpha returns – Increased retail investors
37.5%
12 25.0% 8 12.5%
4 0
0.0% 2002
2003
2004
2005
Stock Exchange Revenues ($ bn)
2006 Grow th Rate
Source: WFE
50%
Stock Exchange Revenue Grow th and Index Perform ance
30% 10% -10%
2002
2003
2004
2005
2006
-30% -50% Revenue Grow th
DJIA Returns
FTSE Returns
Source: WFE, Thomson Financial © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
4
Industry Overview (2/2) • Liquidity, capital efficiency and scale / distribution of major exchanges pose significant barriers to entry for new entrants • Industry has witnessed significant consolidation with increased M&A activity in lieu of operational efficiencies – Industry is significantly consolidated with top 10 companies having more than 73% of total revenues • The trend towards securities exchanges listing accelerated with five new exchanges going public in 20061
Top 10 Exchanges Worldwide - 2006
Revenue Breakdown - Region wise - 2006
20% 47% 33%
1 The five exchanges are Bolsas Y Mercados Espanoles (BME) Spanish Exchanges, Bourse de Montréal, Bursa Malaysia, Johannesburg Stock Exchange Limited and NYSE Group, Inc.
Europe, Africa and Middle East
© 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
Americas
Asia Pacific
www.sutherlandglobal.com May 24, 2013
5
Industry Overview – Emerging Capital Markets (2007)
9 Exchanges $1.8 $46.3b n T
10 Exchanges 7 Exchanges
Eastern Europe and Africa
$1.03T $12.1b
$13.0 $233.1bn T
n
6 Exchanges $2.2 T
GCC $54.8 bn
South Asia
Latin America
South Asia (10 exchanges): Bombay SE, Bursa Malaysia, Hong Kong Exchanges, Korea Exchange, National Stock Exchange India, Philippine SE, Shanghai SE, Shenzhen SE, Taiwan SE Corp. and Thailand SE
Eastern Europe & Africa (9 exchanges): Budapest SE, Cairo & Alexandria SEs, Cyprus SE, Istanbul SE, JSE, Ljubljana SE, Tehran SE, Tel Aviv SE and Warsaw SE Latin America (6 exchanges): Buenos Aires SE, Colombia SE, Lima SE, Mexican Exchange, Santiago SE and Sao Paulo SE XXX(7 exchanges): Tadawul Exchange, Kuwait Stock Exchange, Dubai Financial Market, Abu Dhabi Stock Exchange, Doha Securities Market, Muscat Securities Market and Bahrain Stock Exchange Source: WFE, Zawya © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
6
Industry Overview - Revenue Segmentation • Stock exchanges generate revenues from services classified in three broad categories – Trading, services and listing and other ancillary activities Stock Exchange Revenue generation - 2006 (100%)
Trading (49%) – Transaction fees (46.0%) – Membership fees (2.0%) – IT fees (1.0%)
• • • •
Services (19%) – – – –
Clearing (5.3%) IT sales (4.2%) Settlement (1.1%) Other post –trade services (6.7%) – Other (1.7%)
Listing (9%) – Initial listing fees (2.3%) – Annual listing fees (5.5%) – Other listing fees (1.2%)
Market data (9%) – Market data (9%)
Other (14%) Financial services (4.0%) Other services (10.0%) – Newswire & multimedia services – Investor relation services
Trading revenues include revenues derived from activities such as trade execution services, trade reporting services, access services to trading platform and others Services revenues include revenues derived from distribution of analytical, quote and trade information, access to maintained databases, clearing and settlement of options, futures and options on futures and other activities Listing revenues include revenues derived from securities’ listing business. Annual listing fees provide significant revenue visibility Other category includes revenues derived from ancillary financial services such as independent insurance brokerage services, shareholder communications and investor relations intelligence services, press release newswire and multimedia services provided by the exchanges
Note: Percentage break-up based on 2006 data. Source: WFE Cost and Revenue Survey 2006, Oct 2007. © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
7
Industry Overview – Growth Drivers Evolution of derivatives market 16000
1200
14000
800
10000 8000
600
6000
400
Open Interest
1000
12000
Volume
• Continued evolution of derivatives market has enabled corporations and governments to hedge their exposure to a variety of risks including interest rates, foreign exchange rates, equity market prices and commodities prices
Global Exchange-traded Derivatives Grow th (contracts in m n)
4000 200
2000 0
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Volume Open Interest
Volatile market • High levels of volatility across markets have resulted in significant trading activities. Equity market volatility, based on the Chicago Board Options Exchange (CBOE) Volatility Index, is at 26.5, 35.5% above historical average of 19.6. Short-term interest rate volatility (based on 3-month LIBOR) is at 7.1%, over three times its longterm historical average
So urce: B ank fo r Internatio nal Settlements
CBOE Volatility Index 40 35 30 25 20 15 10 5 Jan-00
Mar-01
May-02
Jul-03
Sep-04
Nov-05
Jan-07
Source: Reuters © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
8
Interesting Stories – Significant Consolidation in 2007 M&A Activities in Emerging and Developed Markets • M&A activities in stock exchanges witnessed significant growth since 2005. Stock exchanges in emerging markets have become more attractive due to increase in trading volumes and IPO boom whereby increasing their valuation • Developed markets have seen consolidation in stock exchanges for optimizing efficiencies as well as enhancing product mix
Target Stock Exchanges in Market 19
20
15 13
15 10 5
6 3 1
2
5
4
3
3
1
0 2003
2004
2005
Em erging Market
2006
2007
2008
Developed Market
Transactions in Emerging Markets 20
Acquirers in Emerging and Developed Markets • Developed market acquirers have remained dominant investors in stock exchanges of emerging and developed markets • Emerging markets are witnessing the M&A activity in its stock exchanges • Developed market stock exchanges are also being targeted by the emerging market investors since 2007
15
8
10 5 0
1
2
11
3 2
1
2003 2004 2005 Acquirers Em erging Market Acquirors
3 1
2006 2007 2008 Acquirers Developed Market Acquirors
Transactions in Developed Markets 20 15 10 13
5 0
3
3
6
2003 2004 2005 Acquirers Em erging Market Acquirors
12 3
3
2006 2007 2008 Acquirers Developed Market Acquirors
Source: Bloomberg and Thomson © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
9
Acquisition Analysis
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
10
Comparable Companies Analysis – Developed Markets
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
11
XXX Stock Exchange – Comparison
120
Size of bubble depicts the market cap ($ bn) of each stock exchange
Dubai Financial Market, 143
110 100 The Kuw ait Stock Exchange, 216
Year 2007 Volume (in bn)
90 The Tadaw ul Stock Exchange, 537
80 70 Abu Dhabi Securities Market, 0.1
60 50 40 30 20
Doha Securities Market, 108
10
The Muscat Securities Market, 24
The Bahrain Stock Exchange, 0.03
0 -10 0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
No. of Com panies
• XXX exchanges are becoming technologically advanced, operating on real time T+0 settlement basis such as Tadawul and Kuwait stock exchanges • In 2007, Tadawul Stock Exchange (Saudi Arabia) has the largest market cap of $537bn and Kuwait Stock Exchange (Kuwait) has 192 stocks listed, the highest in XXX market. • Due to thin trading volume, Muscat Stock Exchange has a market cap of $24bn with 128 listed companies, which is much lower than UAE markets having a market cap of $143bn with 120 listed companies • Bahrain Stock Exchange market cap is very low at $300m despite 52 companies being listed whereas Doha Stock Exchange has a market cap of $107bn with 40 companies being listed © 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
12
Thank You
Š 2013 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
www.sutherlandglobal.com May 24, 2013
13