The Goldman Alums Who Arranged the $27 Billion LSE-Refinitiv Deal

(Bloomberg) -- Martin Brand, a German trader-turned-buyout pro, was closing on the $20 billion purchase of Thomson Reuters Corp.’s financial and risk unit he spearheaded for his Blackstone Group Inc.-led consortium, but he was already planning his next big move.

The business, christened Refinitiv, couldn’t on its own produce the billions needed to justify the giant deal. Blackstone viewed the logical next step as a combination with a stock exchange to create the scale markets demanded, and even toyed with the idea of buying the London Stock Exchange Group Plc at the time, according to people with direct knowledge of the matter.

Enter David Schwimmer, LSE chief executive officer. Schwimmer and Brand were on friendly terms from their shared experience at Goldman Sachs Group Inc. and on a deal involving a financial-technology firm co-owned by Blackstone and Goldman. Armed with a record share price, Schwimmer turned talks about asset swaps and partnerships between his company and Refinitiv into discussions about a full-blown takeover. That deal is set to be formally announced Thursday, people familiar with the plans said.

LSE will be buying, not selling, but the result is the same: A $27 billion deal to create a global powerhouse in data and trading platforms that will more than double the value of the Blackstone group’s initial equity investment in Refinitiv in just 10 months. LSE added almost $4 billion in market value in the first trading day after the talks were confirmed.

“Schwimmer was clearly brought in to do a deal and seems to be delivering,” said Niki Beattie, founder of Market Structure Partners. “The deal shows the importance of data in the world going forward.”

New Company

The tie-up would create the largest publicly traded market-infrastructure company and bolster LSE’s fastest-growing segment, adding heft without the hassles of major regulatory roadblocks. The exchange’s 2017 bid to combine with Deutsche Boerse AG was blocked by regulators, and Schwimmer ruled out big exchange mergers after taking the job.

Refinitiv offers products including the Eikon terminals, the FXall platform and trading execution system Redi. Bloomberg LP, the parent of Bloomberg News, competes with Refinitiv to provide financial news, data and information.

As 2019 began, officials from the Blackstone and LSE were discussing deals involving Refinitiv assets. The arrival in London of Schwimmer, a New York-bred dealmaker for two decades at Goldman Sachs Group Inc. who once served as chief of staff to then chief operating officer Lloyd Blankfein, gave a sense of urgency to those talks. He proposed a full merger, with LSE handing over an informal deal blueprint in May, according to people familiar with the deal.

It’s not the first time Schwimmer’s been at the table for a big deal involving market plumbing. He was an architect of the combination between the New York Stock Exchange and Archipelago Holdings Inc. more than a decade ago. His hiring at the LSE fueled speculation that it would seek a trans-Atlantic tie-up with Intercontinental Exchange Inc., owner of the NYSE.

Acquisition Currency

A 30% rally in LSE shares since his arrival through July 26 gave him a strong currency to use in acquisitions, making the Refinitiv deal possible, said a person familiar with the offer. Monday’s gain added another 15%.

That contrasts with the skepticism of critics who demanded the reinstatement of his predecessor Xavier Rolet, who left in late 2017 amid a bitter dispute with the board over his management style. TCI Fund Management Ltd. dumped more than half its 5% stake by late 2018.

In 2019, Schwimmer and LSE Chairman Donald Robert kept the talks -- dubbed “project artist” internally -- limited to a tight circle. Goldman Sachs wasn’t brought in to advise until the final three or four weeks and some of LSE’s key shareholders weren’t notified until the weekend after the media reported them, the people said.

On Blackstone’s side, the deal was anchored by Brand, a senior managing director at the firm who is likely to be named as a board member.

A German native, Brand, 44, was educated at Oxford and started his career as a foreign-exchange options trader at Goldman. He also attended Harvard Business school before carving out a career in private equity. During an intervening stint at the consulting firm McKinsey & Co. one of his clients was Reuters. In a 2018 podcast, he said Blackstone looked at the deal in 2015.

Now, he said that as machine learning replaces humans, data will be an “extremely valuable commodity.”

Refinitiv holders may receive a stake of about 37% in the combined group, according to an LSE statement on Saturday. Blackstone is likely to get two board seats and Thomson Reuters another, one of the people said.

Lock-Up

Under proposed terms of a sale, the owners would have to stay at least partially invested in the combined company for about five years, according to people familiar with the matter. Such so-called lockups keep existing investors committed to the business and sharing the deal risk while allowing them to benefit from potential growth.

Refinitiv’s current owners, a consortium of investors led by Blackstone as well as Thomson Reuters, wouldn’t be able to sell any stock until two years after the deal closes, the people said, asking not to be identified because the terms are private. That could take at least a year. After that, the owners would be allowed to sell a set number of shares in phases over the next couple of years, delaying a full exit for about five years, they said.

On paper, the deal is already looking like a big return for the group that bought a majority stake in Refinitiv last year. The sale to Blackstone, Canada Pension Plan Investment Board and GIC, Singapore’s sovereign wealth fund, valued the business at $20 billion.

Of that, about $6.5 billion was equity with the rest debt. The debt, which was about $13.5 billion at the time, has remained at similar levels meaning the equity value of Refinitiv has more than doubled since the deal closed in October, people familiar with the matter said. That’s on top of the money made from the initial public offering of Refinitiv’s bond-trading platform Tradeweb Markets Inc.

“This is 100% a market data deal which assumes that distribution will stay the same over the next decade,” said David Mercer, CEO of LMAX, a London-based trading platform. "There you have a 30 billion dollar risk.”

--With assistance from Jan-Henrik Förster and Benjamin Robertson.

To contact the reporters on this story: Dinesh Nair in London at dnair5@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net;Viren Vaghela in London at vvaghela1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net, Amy Thomson

©2019 Bloomberg L.P.