Microsoft Corp. agreed to buy a 4% stake in London Stock Exchange Group Plc in a US$2.8 billion cloud-computing deal that pushes big tech further into financial markets.
As part of the agreement, LSEG said it will spend at least that amount on cloud services with Microsoft over the next 10 years. The partnership will speed up the migration of its markets to the cloud and allow it to develop new products and services, it said Monday.
The transaction adds to a recent trend of exchanges and tech firms linking up after similar partnerships between Nasdaq Inc. and Amazon.com Inc., as well as Alphabet Inc.’s Google and CME Group. It points to increased demand from investors for information that gives them an edge in increasingly fast electronic markets.
Global spending on financial market data and news rose 7.4% to a record US$35.6 billion in 2021, according to an April report by Burton-Taylor International Consulting.
“We will be generating meaningful revenue growth in the coming years by accessing new products and enhancing our existing product capabilities,” LSEG Chief Executive Officer David Schwimmer said in a phone interview.
At Friday’s closing price, a 4% stake in LSEG was valued at around £1.6 billion (US$2 billion).
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Microsoft will buy its stake from a consortium made up of Blackstone, Thomson Reuters Corp. and affiliates of the Canada Pension Plan Investment Board and Singapore’s GIC, according to the statement. Thomson Reuters said in a statement it plans to use its proceeds from the transaction “to pursue organic and inorganic opportunities in key growth segments and provide returns to shareholders.”
Microsoft shares gained 1.4% in New York at 9:40 a.m. LSEG’s shares rose as much as 4.9% in London trading.
Minimum Spend
The deal underlines LSEG’s increasing focus on data and analytics. The company completed a US$27 billion purchase of Refinitiv last year, kicking off a new era where the majority of its revenues come from data. The parent company of Bloomberg News competes with Refinitiv to provide financial news, data and information.
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The Microsoft agreement is expected to cost LSEG between £250 million to £300 million between 2023 and 2025, including about £100 million in capital spending.
Additional spending beyond the US$2.8 billion minimum depends on the “success of the strategic partnership” and demand for LSEG’s data platform and professional services, according to the UK firm. Microsoft estimated in a separate statement that the “partnership, and broader market opportunity, could generate an additional US$5 billion in revenue for the company over the next 10 years.”
Scott Guthrie, Microsoft’s executive vice president for cloud and artificial intelligence, will be appointed as a LSEG director.
Data Consolidation
The past few years has seen consolidation among the finance industry’s biggest data providers. Last year, S&P Global Inc. agreed to buy IHS Markit Ltd. while Deutsche Boerse, LSE’s biggest European rival, took a majority stake in Institutional Shareholder Services Inc., the corporate-governance adviser.
It’s not the first time Microsoft has struck a deal alongside unveiling a sizeable cloud deal. In 2018, it invested in Grab, with the ride-hailing firm agreeing to adopt Azure as its preferred cloud platform.
These cross-selling deals don’t always end in success. In 2012, the US tech firm spent US$300 million in a stake in then struggling bookseller Barnes & Noble’s e-book division Nook.
As part of the deal, Barnes & Noble agreed to make e-reading content for Microsoft. Two years later, Barnes & Noble bought out Microsoft’s stake for about US$125 million, after Nook struggled to win over customers.
