Toto, I have a feeling we’re not in Kansas any more!

After much speculation it seems that another North American player will now be dominating the European trading landscape. It is surprising to learn that Kansas-based BATS Global Markets will pay the equivalent of £230 million (using today’s exchange rate) for the acquisition of Chi-X Europe. The latter firm has around 50 employees so the BATS deal suggests they are willing to pay more than £4 million per employee.

Just had a peep at Chi-X Europe’s financial statements and note that their profits for 2010 (their first year in profit) were almost £800,000. This means BATS are paying the equivalent of 287 times Chi-X’s profits. I have also heard that BATS will not be keeping many of the assets they buy. They are rumoured to be getting rid of the management, changing the technology and keeping only 40% of the staff. On top of this, with the impact of all the new MiFID regulations on algos and HFT, what is the future shape of growth in European equities trading?

Can one brand really be worth that much? Why is BATS willing to pay such a high price for the acquisition? Some say price mirrors the future growth potential of Chi-X Europe and has nothing to do with its past performance. I do believe that, but if you destroy the assets then what is left? Perhaps this deal is more about cashing in through their planned IPO in the US than about an investment in Europe.

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