Microsoft has agreed to buy a £1.5bn stake in London Stock Exchange Group as part of a 10-year strategic partnership, marking the latest incursion by Big Tech into the operation of global markets.
Under the agreement, Microsoft will acquire a 4 per cent stake in LSEG worth about £1.5bn from Blackstone, Thomson Reuters, Canada Pension Plan Investment Board and Singapore’s sovereign wealth fund GIC.
As well as improving the 300-year-old exchange’s data and analytics, the tie-up would “meaningfully” increase LSEG’s revenue growth over time as they developed new products together, the companies said on Monday.
The deal was “far, far different to simply lifting and shifting assets to the cloud”, said David Schwimmer, LSEG chief executive, describing it as “a significant strategic partnership where we’re building products together and accessing markets together”.
Scott Guthrie, executive vice-president of Microsoft’s Cloud and AI unit, will take a seat on LSEG’s board. The tie-up follows Google’s $1bn investment in Chicago-based CME in November 2021 as part of a 10-year cloud computing deal, while Nasdaq and Amazon Web Services agreed a similar partnership last year.
The agreement comes as LSEG faces pressure to make its $27bn acquisition of data and trading group Refinitiv pay off. Schwimmer touted the 2019 deal as a way of transforming the exchange into a global data and analytics company that could compete with the likes of Bloomberg, but integrating the business has proved fraught.
As part of the deal, Microsoft will provide LSEG with data analytics and cloud infrastructure products using its Azure, AI and Teams platforms. It will also use Teams, the messaging platform Microsoft sells to companies, to help create a one-stop shop housing financial data and analytical tools.
“This is a step change in terms of how financial market participants will interact with each other, with their data,” said Schwimmer, a former Goldman Sachs banker who has run LSEG since 2018.
Shares in LSEG climbed as much as 4 per cent at the open in London and were up 3 per cent in afternoon trading.
Ben Bathurst, analyst at RBC Capital Markets, said the integration of Teams could mean LSEG’s system “may now become more widely accepted as a credible competitor to Bloomberg”.
The deal commits LSEG to spending £2.3bn at Microsoft over the 10 years, but Schwimmer stressed that the company would continue to work with other cloud computing providers. “We don’t like to surprise our regulators,” he said, adding that “this is not about Microsoft having control over LSEG”.
The two companies intend to use Microsoft’s machine-learning capabilities to help investment groups create financial models.
Financial trading platforms were for a long time seen as beyond the reach of cloud companies because of the high-speed requirements, but the string of new alliances underscores how that has changed as cloud capabilities have improved.
“The race to the cloud has accelerated through and post Covid,” said George O’Connor, IT sector analyst at stockbroker Goodbody, labelling it as an “arms race” between Microsoft, Amazon and Google to hoover up deals that see big customers migrating to the cloud. “The share stake underscores the pointy elbows at work,” he added.
Microsoft expects to reap $5bn in revenue through the 10-year partnership. “This allows Microsoft to provide more vertical expertise than ever before,” said Judson Althoff, the US group’s chief commercial officer.