TMX embarks on data diversification and expansion play with WSH buy

Exchanges have been snapping up data providers in a bid to expand their businesses beyond traditional transactional and market data-based revenues. There’s the Intercontinental Exchange’s purchase of Interactive Data; Nasdaq buying Quandl; the London Stock Exchange Group acquiring Refinitiv; and Cboe assembling a cadre of analytics by piecing together the likes of Livevol, Trade Alert, Hanweck and FT Options.

Now, it’s TMX’s turn.

The Canadian exchange group’s acquisition of Boston-based events data vendor Wall Street Horizon (WSH) for an undisclosed sum, which was announced on Monday, is part of a drive at the exchange to expand the amount of unique content it can deliver to clients, following the appointment of Michelle Tran as president of its Datalinx data division last year.

Tran says corporate actions is one area of “core content” that TMX wanted to expand on, adding that the exchange plans to leverage WSH in several ways. First, the vendor’s global reach and coverage of 10,000 corporate events for companies listed on exchanges worldwide will complement TMX’s position as the source of corporate actions for Canadian-listed companies.

“Wall Street Horizon helps us round out our coverage globally, and brings the depth and breadth we need for corporate actions,” Tran says. “There are quite a number of ways we feel this will be synergistic.”

Second, the companies can extend both their footprints by making TMX data available to WSH’s base and upselling WSH’s events data to TMX clients—a simple yet valuable move, observers say.

“I think the events data space is very important, and is not well served by aggregators,” says Tim Baker, industry veteran and founder of consultancy Blue Sky Thinking. “Stocks move because of events in the markets—things like a dividend being delayed, or an event being moved. For years, hedge funds have been mining Wall Street Horizon and others to detect these events and get in front of that movement in a security.”

Tran’s third strategy is to package the WSH data with other proprietary TMX content—for example, using its corporate events data to underpin new benchmarks and thematic indexes. In addition to its alpha-generating potential for traders and investors, she says listed companies are also interested in the potential of WSH’s data to increase transparency around their issued securities.

Growing pains

WSH CEO Barry Star describes the deal as the start of a new phase in the company’s growth. “We’ve just entered the third inning in a nine-inning game. This is the exciting part. We have a product that we’ve sold to sophisticated professionals around the world, but that’s still only 150 clients. TMX has 5,000 clients, so we can leverage that base,” he says.

Despite building and selling a successful product, the bigger challenge for WSH was how to achieve the scale to sell its data more widely as a small company.

“Every student of corporate history knows that companies go through these three cycles: Can you build it? Can you sell it? And can you scale it?” Star says.

“Well, we had built something cool and differentiated that others can’t easily pick off. And we’ve had sophisticated institutional clients who have been clients for years. But the third part is a different skillset: sales, account management, renewals, billing—it’s a whole different world doing those for 100 clients vs. doing them for 5,000 clients. TMX will help us scale. They have relationships with all those clients to generate introductions, and have more experience selling at scale than we do,” Star says.

Blue Sky Thinking’s Baker believes TMX represents a good home for WSH. “I know [WSH CEO Star] had been looking to grow the business, which would have either meant raising a lot of money and investing that directly in the business, or being bought. TMX is a good fit because it’s the primary provider of a lot of Canadian data, and Datalinx is looking to expand. So with that, WSH gets access to a salesforce, a new channel, and service agreements with 5,000 clients.”

Bruce Fador, CEO of consultancy Fador Global Consulting, who served as interim president and chief commercial officer at WSH between 2014 and 2017, agrees that TMX is a good fit.

“Right now, what TMX has that’s unique is a tremendous amount of data on a limited number of companies. (Canada has roughly one-quarter of the number of listed companies in US markets.) So, they may be saying, ‘What differentiates us as an exchange and allows us to compete with Nasdaq or NYSE?’ And the more value-add information you can give clients, the more you make yourself an indispensable partner to listed companies,” Fador says.

For now, Tran says WSH will continue to run on a standalone basis as a TMX subsidiary, with Star remaining as CEO—and he confirms his intent to remain with the company. Star will report to Dominic Dowd, managing director of product management for Datalinx’s data and analytics products.

But should Star decide to cash in his chips after a while, WSH’s processes and IP are well documented and easy to continue.

“One thing I give [Star] kudos for is the amount of documentation around everything. IT would reassure any buyer that anything could happen and they would be able to replicate everything,” Fador says. “[Star] spent a lot of time getting the product right, getting the sourcing right, identifying the processes, creating documentation around it, and bringing in the right people … and he has continued to define accuracy as the top priority for the data.”

Long-term outlook

While the deal may be small compared to data acquisitions by other exchanges, it may not be the last for TMX—furthermore, growth of the exchange’s Datalinx data business should be measured not only by the number and size of acquisitions, but also by what it can achieve in-house. Indeed, the exchange’s practice is to work internally before pursuing opportunistic acquisitions.

“We want to look at: what we can build; who can we partner with to accelerate that; and what are the right ‘tuck-in’ acquisitions?” Tran says. “Our strategy is not short-term. We have a five-year outlook and a 10-year outlook, and there are pipelines of opportunities we want to look at. And when we look at any move, we ask ourselves, is it complementary to our long-term outlook?”

Any further data acquisitions by TMX would contribute to the ongoing trend of exchanges snapping up data vendors as marketplaces seek to diversify their revenues, grow their distribution, connect directly with more clients, and offer more value-add datasets beyond just price data.

“There is this general trend underway of exchanges diversifying beyond being exchanges and just providing price data,” Baker says. “In the future, I see more exchanges wanting to deliver data direct to customers, rather than depending on aggregators to distribute their data to clients.”

Fador, again, agrees: “I do think exchanges will continue on this path. It gives them control over new datasets at a time when core exchange price data is coming under greater regulatory scrutiny, and allows them to be more valuable to a broader customer segment,” he says, adding that in particular, “I can see TMX becoming a good home for data companies.”