TMX Group Ltd. will pay $592-million in cash to buy Trayport Holdings Ltd. from Intercontinental Exchange (ICE) Inc., which also owns the New York Stock Exchange. TMX will pay for the remaining $339-million by selling Natural Gas Exchange Inc. (NGX) and oil brokerage Shorcan Energy Brokers Inc. to ICE.Mark Blinch/Reuters
The Toronto Stock Exchange's parent company is buying a British-based provider of software for energy traders, brokers and exchanges for $931-million in a deal that shifts control over oil-and-gas trading platforms in Canada.
TMX Group Ltd. will pay $592-million in cash to buy Trayport Holdings Ltd. from Intercontinental Exchange (ICE) Inc., which also owns the New York Stock Exchange. TMX will pay for the remaining $339-million by selling Natural Gas Exchange Inc. (NGX) and oil brokerage Shorcan Energy Brokers Inc. to ICE.
Trayport is a technology platform that brings together pricing information and trading activity in commodities, including power, natural gas, coal and oil, across multiple marketplaces. It operates in 42 countries, with an emphasis on Europe. Its clients are a mix of brokers, exchanges and clearinghouses.
TMX says the deal will help it bolster its data and analytics business, pursue growth outside the Canadian market and generate a larger slice of revenue that's recurring instead of transaction-based. The development brings new competition to an active part of the energy business used by experts who make deals to supply Canadian oil and gas to buyers across the continent.
"This is a play in technology-driven solutions, but it's also a major play in global energy markets," said Lou Eccleston, chief executive at TMX. "Trayport is a player in the global energy market, which is going to grow."
A subscription to Trayport gives clients access to reams of energy market data, as well as analytics tools that can be employed to better understand this data. It is also a place where different market participants can interact virtually.
Founded in 1993, Trayport has 240 employees across offices in London, New York and Singapore. During the past 12 months, Trayport has generated $99-million in revenue. By contrast, in the year through June 30, NGX and Shorcan recorded $59-million in sales.
Mr. Eccleston said TMX has its sights set on expanding the Trayport platform into new asset classes and entering new regions. The technology is flexible, so that if a new asset class in, for example, clean tech takes off, Trayport can move into that market, Mr. Eccleston said.
The sale of Trayport comes months after British competition authorities ruled that ICE had to sell the business to preserve competition in the European energy-trading market.
ICE, which is headquartered in Atlanta, is no stranger to Canada. It also operates ICE Futures Canada, the country's Winnipeg-based derivatives market for agriculture.
NGX is the dominant platform for wholesale natural gas trade in Canada, providing electronic trading, clearing and data. It is best known for developing the AECO gas storage hub in southeastern Alberta into a benchmark for pricing for the fuel, which it expanded into the United States more than a decade ago. NGX also hosts electricity trading.
Shorcan Energy Brokers provides a similar platform for crude oil, such as Western Canada Select, the heavy-grade crude that is frequently quoted as a benchmark. That part of the business has faced increasing competition, with the entry last year of Europe's Marex Spectron.
In efforts to consolidate the fragmented market and avoid price discrepancies, Marex Spectron and a local player, One Exchange, have teamed up to offer a single benchmark for WCS oil prices and have invited Shorcan and another major rival, Net Energy Inc., to join the effort.
"We did not do this to sell those businesses," said Mr. Eccleston, of NGX and Shorcan. "They weren't up for sale. They happened to be a compelling reason for ICE to do this deal with us."
The sale of NGX and Shorcan to ICE is subject to regulatory approval, including from the Canadian Competition Bureau. If the sale doesn't close within the next 45 days, TMX's acquisition of Trayport can be separated from the sale of NGX and Shorcan to ICE. The price of Trayport would be then $931-million in cash, whereas NGX and Shorcan would be sold for $339-million in cash.
And if the closing doesn't occur within 90 days, ICE can choose to back out of its purchase of NGX and Shorcan.
Barclays advised TMX on the deal.
Shares of TMX rose 1 per cent, or 95 cents, to $67.49 in early trading on Friday. The company's stock has slid 6 per cent so far in 2017.