TMX Group Limited (X) Earnings Call Transcript & Summary

[Audio Gap] even valuations around the energy sector. So despite those headwinds, actually, we're continuing to hold our own. The business is very resilient. And to your point around the energy market, for those who know, we operate Trayport, very large energy market aggregator. It's actually continued to be even more important to the industry with the volatility particularly in Europe, it's the one place you can see all markets in the same place. So been even more important with the dislocation in the European energy market.

Great. So maybe on the topic of the financings, as you were mentioning. Can you maybe talk a little bit about the current IPO pipeline? What do you think is required to start seeing listings kind of come back in a more robust way? Do we need valuations to kind of settle out? Do we see valuations come up a little bit? Along the same lines, can you maybe just remind us, your current split of your Canadian versus international companies?

Yes, I'm happy to. I mean, whenever you want to see financing starting to come back, especially large deals, what it takes is market confidence. And often, that takes a couple of good transactions to get done. And you can do them in a volatile market, but there needs to be enough certainty that companies can get a large deal priced. And so we've actually managed to have a couple of those get done throughout Q2 in terms of new transactions in a couple of different sectors, not the big mega cap deals, but good deals where companies are raising $500 million, $600 million. The same time, what we're actually seeing is actually a growth in small cap listings. So small cap listings where we can bring a very junior company to market through a capital pool company transaction, which is more like a miniature SPAC transaction, it's actually less sensitive to market values and volatility because they're funded by founders. So they're essentially private equity transactions on a public exchange. And for the first half of this year, those were up about 26% for us in new capital pool companies. Doesn't get the same headlines because these are smaller dollar transactions. But when you think about the ecosystem and the pipeline, those are companies that are going to raise financing multiple times in their life cycle. They'll eventually graduate to the TSX and become index eligible companies and add to the more than 700 companies we've had grew up that way. So that's kind of what we're seeing in the financing market. And really, it will take some confidence after more deals get done for more larger transactions to happen. Like other marketplaces, we had a book of IPOs that were ready to go earlier in the year that have pulled back and they're looking for better market conditions. But our pipeline of potential companies that could IPO with us continues to be strong. We've got about 1600 companies in the active pipeline. About half of them are international, continues to be about half of them are technology as well. So that mix hasn't changed. And about 50% of all the deals we did last year were companies that came off our pipeline. We've been doing this for a couple of years now, and it's now starting to curate success in terms of companies that come to market.

Great. So I wanted to ask a little bit more on the venture exchange, but you kind of covered that. But maybe just a little more detail. You recently launched an initiative, I think you called Venture Forward. Can you just talk about what you're doing to sort of lower the barriers to capital raising for these smaller companies?

I love that you ask that because it's a question that analysts don't usually ask, and we try to push it out on the media side as well. So Venture Forward, you recognize that any exchange, the rule book on exchange is built up over years and years of changes. And the rule book for the venture exchange is probably an inch thick for anyone that still prints it out. So what we wanted to do is go back to the industry, the community, and all the various stakeholders, the issuers, the capital raisers, the intermediaries. And so if you started from a fresh sheet of paper, what do we need to change in the marketplace to modernize to make it easier for companies to come forward. So we're doing it as a broad industry process, and we'll use it to reform the market in terms of what's the right disclosure rules. A lot of disclosures in markets were written before the Internet. And so how do we take advantage of electronic disclosure to make it easier as companies go public, streamline prospectus offering? We’ve even raised the question with regulators around small cap companies are why are we demanding they report every quarter? Their stories don't change every quarter. We want these companies that maybe only have 12 people in our shop to focus on building their businesses and expanding. And so how do we reduce that quarterly burden on them so they can actually focus on growth. And all of that piece blowing the line a bit between what is the private market and the public market. So we're doing both on our side through Venture Forward. But we're also doing it through active advocacy with regulators and government agencies and want to ensure that public companies are not disadvantaged from raising capital by way of being public.

Very interesting. Very unique what you guys are doing. Maybe just kind of sticking with the capital formation side of your business. Can you maybe talk about the Canadian rate environment? What are the implications for your trust business? And what's sort of the rate sensitivity? Maybe more tactically how should we think about that over the next 12 months given what's changing?

For those who don't know our trust business is a much more meaningful business than it was a number of years ago. We first got into transfer and trust. It was about a $13 million business when we got into it. It's about an $80 million business today with the acquisition of AST Canada. And we're able to serve companies of all size, junior and senior in terms of full transfer agency trust, employee plans, kind of everything they need in terms of being a public company. And we'll continue to grow that. We're growing that high single, low double digit from that new base. The piece that you raised around interest rates is interesting because when we bought the AST business and we closed it last year, we closed it an environment where rates were near 0. So there was very little interest income in the business built in at the time. But we're handling cash for corporate transactions. So when companies are doing dividends or debt payments or big corporate actions we're handling that cash on their behalf and we're sharing the interest spread together for what we take on deposits. And so that's a space that's going to grow substantially. And basically, every quarter point that rates move based on historical activity is worth about $2.5 million in net revenue to us. So it's an opportunity to really expand the upside in this business, and it's all upside because it really wasn't there at the time we bought it because of the low rate environment. So while rates can have more challenges in other parts of the business in terms of things like capital raising because it impacts values in some ways. In this case, it's actually an upside. Where you'll see even more upside as we continue to build the client base we're actually going to grow the actual deposits we take on as well. Because now we can actually compete for bigger clients, bigger corporate actions, bigger trust indentures. We represent maybe mid-30s in terms of market share in the Canadian market for this business. The leader is Computershare and there's no reason why we won't surpass and be the leader in this marketplace because we now have all the tools to compete for big clients. And within more than 50% of mandates. So we're naturally growing our market share but we actually can now take the sales approach of actually calling on bigger companies to switch because we have everything to need.

And I was going to ask, maybe at the high level in the trust business what are the key drivers there? Is it largely market share? Are there any other structural factors beyond sort of the rate impact? Or do you kind of see yourself just well positioned to kind of continue to gain share? How does your growth compare to like the market growth? How would you frame that up?

We will outgrow the market for sure. So we will take market share and 2 ways you take it is for net new companies coming to market. Given that the relationship we have in exchange and we get to know them earlier on, we really get the first crack to sell and build a relationship with them. And so that's why I said we can consistently win more than 50% of the net new deals in the market and that's been our track record. And now we can win deals with bigger issuers. But we can also sell and convert. So we never had the ability to sell to government agencies in the past. Mortgage and housing corporations we can sell because we have that trust and capability to all of them. So our addressable market gets quite a lot bigger. And then the last piece is we can actually provide a deeper service offering to clients than what we could in the past like an employee plan management tool or capital table management. So a lot of those services that you see people get excited about what [ Carta ] has done for small private companies. We have those same capabilities that we can now sell to other companies as well. So it's market share, it's larger clients, and it's a deeper offering with more products and services.

Maybe one last question here just on AST. Can you remind us where are you with the integration of the acquisition in terms of your current expectations for revenue and cost synergies? How much more is there to go there?

So we committed $8 million in terms of run rate synergies between the 2 while we are going to exceed it. And I believe that the original estimate we have for this year I think was 2 this year. I think we're up to 3.5% now in terms of what we're projecting for this year. So we'll exceed this year as well on just the cost side. We are done on the core component of our integration. So the ongoing commitment to the AST U.S. business which we needed for services, we want to round that up in August. And so that allows us to now invest ourselves and grow faster. And in the COVID world, we actually took advantage of the fact that we've got all hybrid work models and work staff. We were able to shut down all 4 of their offices this year and move all their people in basically absorb 10% more workforce within existing premises. So that goes straight to the savings.

Maybe kind of back on the trading environment in Canada. We talked a little bit about the macro. What about the competitive side now that Neo and MATCHNow has been kind of both acquired by U.S. competitors? Are you seeing any sort of changes? And maybe at a high level, can you talk about the competitive dynamics in the country as they would maybe different from that in the U.S.?

I mean it's a no material changes in terms of how we compete in the market because we really focus on what are the clients need, how do we be at the front end of both the service offering, the competitiveness in terms of the technology and execution. So in the Canadian market there are about 13 competing venues competing for order flow. And for all listed names we do about 2/3 of the market share. And anywhere kind of 65% to 67% and that's been pretty stable for years. In terms of kind of there's a number of small domestic players that are in that in terms of that other 1/3. And then the 2 larger global players are NASDAQ who's been there since 2015 and Cboe now as we said with the acquisition of both MATCHNow and Neo. MATCHNow being a dark offering and Neo being a lit offering. Candidly, this may sound counterintuitive but I actually think that Cboe only in these properties operating in Canada is actually much better for the marketplace. Having Cboe at another lit market would only add more cost and complexity to the industry and to the client base. So having them take on Neo and professionalize it the way they have in other marketplaces is going to be good. I'm hopeful that it actually brings more capital into the market. And I know I think actually probably speaking next but I think that we can compete and exist with each other. The areas where we've got really strong competitive barriers particularly in our home market is around everything around equity trading. So the equity trade like in the U.S. is very liquid, people can get in and out of it. But we have all the strength in the market open. We recently rebuilt the market open and start consultation with the industry. We've actually been growing our dark offering. So MATCHNow is a dark offering. We've now grown our dark offering over 30% of the dark market. And we're adding new features and capabilities that continue to meet the needs of clients. So we're actually now are offering conditional order types. We're looking at more discretionary order types like what IEX does in the U.S. So that's the real competitive strategy. You got to stay at the front end of what the client needs and what they're asking for. So there's no reason for the volume to go anywhere else and that's what we keep doing.

You touched on this a touch but maybe could you expand a little bit on the dark offering. The last update we got your market share had increased like 9 points from 2019 to 2021. So what are the kind of the main drivers there? And where do you see it going? And what's sort of driving it from here?

So where we see it going is those are the product pieces that I talked about. So when we talk about conditional orders or discretionary that's continuing to build that dark functionality so that people can execute different trade strategies outside of the lit market. What's always made our offering unique is that you've got dark trading that can interact with the continuous auction market. And so if liquidity can't get filled in the dark market, get filled in the lit market. And I think that's one of the reasons we've been successful. So as I said we're kind of above 30% of the market and the idea is to continue to push it. Very much like we're doing in trust, we do believe there's no reason why we couldn't build into a leadership market position here.

Maybe moving over to the retail side. So retail trading kind of a hot topic everywhere. I'm sure it's something we'll talk about with you and all your peers who are here today. But where are we today? I know at some point you have given us an update. We peaked almost at 50% at some point in 2021 which was up pretty materially from pre-Covid, it's come down a bit. But where do you see that going? Do you expect it will remain elevated, continue to rise up or kind of ebb and flow as the market moves?

I actually think we're back in a bit of a trough right now with the amount of volatility in the market and probably with some of the global unrest that goes with it. There's actually been more retail pullback. So in our markets we're seeing it more in the 20% these days. And our market is going to move more than the U.S. market because we have that big piece of that's Venture Exchange and Venture Exchange is very retail oriented. So probably 2/3 of that activity is retail already. Where in the senior market, we've seen a shift of more trading activity going in the institutional. So while volumes overall have kind of pulled back from year-over-year dollar value in terms of the dollar trade in the market is up 20% to 25% even from the peaks of last year. And so it's very liquid, it's very active, but you've seen that in kind of more of that flight to quality names, higher-priced securities in the market. So the reason I believe we're in a bit of a trough is because the types of things that happened either pre and during COVID that made retail access even easier. Those aren't going away. So the growth in terms of self-directed firms, the amount of product that's actually on exchange. Even last year for the ETF side I think we added another 100 ETFs to our platform. These are generally retail-oriented products. And some of them are actually quite unique. And we have ETFs that are on bitcoin, other structured ETFs. So different ways for the retailers to interact with the marketplace. So I do believe that when we get a bit more market stability that you're going to see a retail level participation that sustains at a level that was above where we were pre Covid because of that switch from funds, mutual funds to ETFs, for more self-directed activity and really more comfort in terms of retailers being able to own their own trading activity.

You touched a little bit on you mentioned Bitcoin. So can you maybe talk a little bit about the digital asset strategy or kind of offerings from the company? I know that I think U.S. investors are kind of familiar with the U.S. environment or the only options for public tickers are futures-based ETFs. Can you talk a little bit about what the options are in Canada? What the regulatory construct looks like? So people can understand that a little bit.

Yes, I have to. I mean so from a retail trader directly as I said we were the first market in the world to put actually Bitcoin ETFs on exchange. And we've got actually multiple providers that are doing it either on Ether or bitcoin and some other composites. And so that's been available for a while. And candidly those structures look a lot like fixed income ETFs which I've always believed it's a better way for a retailer to invest in fixed income than trying to actually buy bonds and ladder themselves, work their way in and out in terms of small size. So it creates that liquid transparent way for a retailer to get bitcoin exposure without the risk of being in a wallet company that goes bankrupt and you don’t know if you have the asset or not and so it fits in the regulatory model a little bit better. In the regulatory world, Canada is I think taking a lead in ensuring that bitcoin, I'm going to use the word exchanges lightly, but that's what they call themselves are at least regulated, and regulated and as dealers. So they have that same level of responsibility to their end clients that any retail dealer would. I think that's been a bit of a game changer in the local market because it helps to sweep out some of the kind of fly-by-night players there. What we're doing in addition to what we're already doing in the ETFs today is looking at 2 other ways that we think we can support the marketplace, Again, driven by what our clients are looking for. One is on futures. And so I know you've got futures in the U.S. on this. We're looking to launch futures on the Montreal Exchange, on things like bitcoin and Ether largely index-based to support the needs of the asset managers who are putting them in their funds or they’re putting them in the ETFs and they have no vehicle to deal with price risk management, those types of things. So we are looking to do that. I was hopeful we'll get it done this year but it's probably early next year because it is a bit more complicated getting the risk vehicles in place but that's the expectation. We're also in the exploratory phase of actually looking at whether or not we got actually put bitcoin and other digital assets directly on the exchange. And what I would call this is a recentralization of decentralized assets. And the reason be is that banks and broker dealers that want to offer this to their retail clients because the retail clients are leading them to invest in a wallet to do this. They want to offer within their own suite of investment tools but they like to do it within existing infrastructure that they have trust and reliability with. And so we would have the ability to put it on in exchange for paired trading, clear and settle it through us. But it's another one of the things that's taking time to get the model right because the question is if you hold it who owns the liability around it. And that's the challenge as we work our way through it. But given that in our model TMX Group, we have both the trading venues, the clearing values and our own trust company. We actually have all the different tools in place to design a unique solution.

Definitely look forward to kind of seeing what comes up. There's sort of interesting ethos and crypto about decentralization. But for I think, the majority of retail or institutional investors they kind of want access and that's maybe a little less important. So it will be very interesting to see what happens. Maybe one last question kind of on the trading side. We talked about equities and digital assets. Just maybe on the fixed income side of the business as rates are rising, what kind of behavior are you seeing more hedging, more net selling? How would you kind of describe activity there?

It's a bit mixed. So in the long term both for long-term trading, both in terms of bonds and our futures market those markets tend to be more active. In the short term, so things like 30-day futures, [ fix the ] trading around that, that's a tough market right now. There's a lot of headwind in that market because traders are anxious when central banks are making rate changes in a way that's unpredictable. So in terms of central banks really trying to tame inflation when they're making rate changes either on a frequency or in a size that can't be predicted well by the traders, the traders that are in trying to make markets in a short-term product like a 30-day, they pull back. And they put their capital somewhere else or they manage their risk because there's too much exposure. So we've seen in our futures market, our 30-day product is down this year probably 30% to 40%. But we're still getting strong growth in the rest of our rates curve. And we've actually been launching more product there, a 2-year, a 30 year to continue to build it out. So long term we've got a lot of upside potential in that. Short term we're going to see some headwind around that short-term products until there's some more central bank stability. And then given the fact that we also own the largest interdealer broker for Canada that's a little lesser known, we've got the ability to make the cash markets as well. So I do believe that one thing that we probably haven't been as thoughtful to coming out of COVID is there is going to be a lot of new government issuance coming out because a lot of that spend that happened is going to have to get termed out into bigger government bonds. So there's going to be more supply in the market probably the biggest supply rush that we've had in decades.

So maybe kind of moving on to some other parts of the business. You mentioned kind of Trayport at the very beginning of our conversation. Can you maybe give us some high-level kind of color here, kind of your key growth drivers, customers, asset types, geographies, whatever else is kind of important. I think investors understand that this business is growing pretty nicely, as you mentioned, but if you can kind of...

I was going to say yes, yes and yes, in terms of where we're going. So I think the subscriber growth itself in Trayport this year is up about 17 points year-over-year. And the business since we acquired it we bought at the end of '17, we've grown it between 10% and 14% every single year. It might not look like that in our results in the last quarter because I think people know that the British pound is down a bit. And this is mostly a British pound-based business for us. The areas that are driving growth are a couple of things. So first of all again as I said in the beginning with the dislocation in the European energy market, a solution like Trayport and what Trayport does is it puts all marketplaces on a single screen for the end trader. So the trader that's trying to trade German Power can trade through and see who are the brokers that are making markets in that product, who are the exchanges that are making markets in the product, where can I clear it. And they can get access to the full market on a single screen. And the products that are on that screen today, 75% to 80% of the flow will go through it. But we're not a trading venue. It's a data aggregation, it's a subscription model. It looks more like a Bloomberg from a business standpoint than a trade execution venue. And so it's been really important in this marketplace when you've got traders that are moving from exchange to bilateral because of their collateral requirements, they can get all that through Trayport. And that's one of the things in terms of the underlying value proposition has gotten even stronger. What we're doing to continue to drive the long-term growth is as you said, it's geographies, products/asset classes and additional services. So geography wise we've already been active in a few ancillary geographies. We trade a Japan, Korea gas marker. Natural gas continues to get more and more important in this economy. If the Japan market opens up further, we'll be able to trade power and gas there. We've already tested our way there. We're continuing to build out in the U.S. and North America. We've kind of gone from about what was maybe just GBP 1 million in revenue coming out of the U.S. to I think, a run rate of about 5 million today as we add more exchanges and brokers and then traders. So Nodal was our lead partner in terms of working with the U.S. market. They're the leader in terms of gas and power trading. We've got now 2 new brokers that are signed up to sort to add liquidity to the screen. And we're automating their functionality. So it's not just about adding liquidity. We're actually talking to brokers that are trying to figure out how do they automate how they do work. They're mostly phone-based and they want to put their own technology in. What we do is actually give them the Trayport front end to be their technology solution for reaching their traders instead of building their own. And then we recently brought another large U.S. hedge fund. So we're going to start more making markets in those pieces. So we're getting the building blocks in place for that U.S. expansion. And the reason why we think U.S. and North America is so exciting is because you think about the trading opportunity here is as big as Europe in terms of the traders that can use the platform. And the Trayport solution will work just as well here in markets that are disaggregated like gas and power and refined oil that's not WTI. You can trade WTI really well. But if you want to try to trade everything else or trade the Western Canada oil that's brokered. And so there isn't a solution to bring all that market together. The last piece we're driving growth is enhancing the service model. So we have algorithmic trading solution. That's a premium offering. We've got advanced data analytics at our premium offering. We've just done another transaction with a company called Ventrix that's adding new data analytics capability. We did this as a minority investment and really kind of a fintech start-up but we partnered and put their product on our platform as well to accelerate it. And so we've done about 3 or 4 of these now and we'll keep doing it to having more features and functionality of the platform which both makes it stickier but it also adds that kind of higher value-add service that we can sell as a premium. The last piece on Trayport I'll remind you is this is not a regulated data business. This is an unregulated data business. And what that means for us is we bring it to clients through enterprise sales transaction. So every client has got a unique deal with us. It's usually a multiyear deal and they grow with us over time. So a client will come in, they may only take 3 seats. And then as they learn to use it when they renew they deploy and put it on 25 desks and then we'll price up for that. And because we do have multiyear agreements we have CPI built right in. So it's an area where we actually have natural pricing built in the organization that we get on an annual basis as those contracts roll over.

And maybe can you touch on Trade Signal a little bit, just one of your more recent acquisitions and how that's kind of getting integrated and cross-sold and what you're seeing?

Yes, we've got it integrated now. So Trade Signal is advanced charting analytic capability. We've now got it integrated in sales as an upside module for Trayport and we're still in the early stages of actually deploying those sales. But quite frankly, we'll use the opportunity when we talk to clients around things like CPI changes as the opportunity of potentially actually upselling new products in versus just pricing pass-through. Again, when you can use those enterprise relationships, we can make that much more robust experience for the client and add more features and services into a package deal. That's the nice thing about the model.

Maybe switching directions a little bit. And I know ESG is really an important kind of area for the company. Can you maybe talk a little bit about maybe both what you're doing internally as a company to sort of be a more positive force in that way? And also externally in terms of the relationships you have with your listed companies, the kind of services you provide to sort of help them on their paths?

Yes. And ESG has been a really good learning experience for the last couple of years to try to see what was going to be important in terms of driving the market and also what was going to be commercial and they're not always the same things. So as a company and a public company ourselves, we are continuing to try to be a lead player. So we disclose on SASB, we disclose on TCFD. We're a net 0 company already to try to focus on being on the front end. As a marketplace operator, there's a couple of pieces that we focus on which is how do you ensure your market continues to be attractive to ESG investors? And especially in a market like ours where we have 1,100 mining companies in our mix of 3,500 companies. We're one of the largest energy markets in the world but we're also a large tech market. And so we do a number of things there. We actually do ESG 101 training for our small-cap companies. So we actually help them with how do you do good disclosure, how do you talk about environmental standards? And where can you actually get offsets? Those types of things and we help train them. We've got a Jolt reporting portal that we built with IHS Markit to make it very easy for issuers to report against whatever standards they want to report against be the rating companies or SASB or TCFD. And that's a voluntary platform because there's no regulation for them to use it but we have over 300 companies that are voluntary in disclosing through us. Eventually, that builds into a really meaningful data set that can actually help the industry in terms of fund companies or fund managers that want to build their own products but they need the data sets. We've also launched a number of ESG products. But candidly there hasn't been a tremendous amount of what I'll call retail uptake in it. So we put sustainable bonds on exchange. We've launched ESG ETFs, ESG futures. So we've made the product available but there does appear to be more discussion around ESG than there actually has been investing. The folks that are really investing in ESG are doing it through their own proprietary products. So the needs are around data and disclosure so people can actually build their own strategies. So on that, we continue to be really active with the various regulators the global movements to get the standards here. We really need standards because we cannot have inconsistency in things like how environmental outputs are reported. The last piece I'll put in there is again, because we've got the unique business model being both a listing venue and a lot of different types of companies but also having the Trayport model where we can aggregate energy markets, we launched something called the voluntary carbon market. We launched it in partnership with IncubEx and it is a marketplace for voluntary carbon offsets. And that's actually how we did our own offset. We were the first clients on our platform to do our offset trade. And what we'll do is continue to look to roll that out to more companies. So both energy traders but also corporates and it's a vehicle that we could take to our 3,000-plus issuers who are going to be a mix of companies that need offsets and actually companies that create them. Because we've also had a lot of companies that are either energy companies or transition or cleantech that are actually creating the offsets and need a solution in terms of how they can market them to get them to the right buyers.

And maybe some high-level question about the company. You've kind of indicated the desire to get to 50% of revenues coming from outside of Canada versus like 1/3 today. 65% of revenues coming from recurring versus closer to 50% today. So can you maybe talk about the path there. How much is organic versus potentially inorganic? How much is sort of continuing on the path that you're already on? What do you have to do to get there? Are you trying to accelerate that journey?

Yes. I mean the difference between organic and inorganic is really just the difference in speed in terms of how fast we get there. So more than half of the revenues in the company they are these run rate recurring revenues like subscription-based, data revenue, sustaining fees, those types of things. And that's grown substantially. That used to be more in the 30%, 40% range. About 1/3 of the revenue is outside of Canada. And our ambition is that we build this business so that it is more than 50% outside of Canada, more global than local. How it translates into our strategies, the areas of the business that we're working to grow the fastest have that profile. So we're continuing to drive growth in Trayport, high single, low double digits, both in Europe and within North America. That's driving both that run rate recurring revenue, that's driving both the international focus. Within our transactional businesses, we're looking to continue to globalize them. So our Montreal Exchange futures business we are continuing to add products that appeal to a global audience but also take it to the global audience directly. So last year, we actually launched the Asian time zone trading in our platform. We now trade futures 20.5 hours a day, which other marketplace has already done and quite frankly we’re late to the game. But allows us to globalize the platform in a way we hadn't yet. So most of these global platforms would have 60% of their flow coming from outside their borders. We're 40. So we're looking to capture that remainder. We're doing about 6% of our trade in our after-hours time zone. And the folks that are more developed is 15% to 30%. So that's the objective that we're trying to get to as we market in business development. And we're taking the team to Australia next week to do that business development work with the local asset managers, the buy side, the sell side, to connect to Canada. Because one of the things we always got to recognize is in North America, U.S. is a lot bigger than Canada is. So an asset manager that's working from Australia was trying to get an exposure to North America. If we don't make it easy for them to come to Canada they'll just take U.S. by proxy. And the economies are different. So if they're looking to get exposure to what's in our asset base, we make it easier in terms of a future that they can trade the composite on and the fixed income futures that they can offset the currency, trade their own time zone and make the clearing seamless. So again, that's how we're going to drive more of that international growth. The third area is continuing to grow even our legacy data business. So we used to talk about this as being a more mature business that would kind of grow at 1% or 2% a year. But we've changed that focus. We've taken the focus of the organization is that every business has a growth opportunity and must grow. And we've been growing our data business kind of 5% to 7% since then in the last 1.5 years. And in the use of a simple baseball analogy we're not doing it through home runs. We're doing it through singles and singles and singles and singles. New products, pricing changes, market expansion. I think our derivatives subscriptions are up 4% this year as we build the global interest in them. So all those things are driving demand for the data products. And that's one we'll continue to update kind of the guidance that we give to investors that this is an area we believe we can continue to grow in that mid-single plus even though it's already a large mature business. So again, that adds to that recurring revenue opportunity, adds to the global piece. But as we said, we are looking at how we can accelerate this through inorganic means. So we are focused on inorganic opportunities that complement what we're doing in Trayport, complement what we're doing in the data business. So advanced analytic capabilities, advanced data opportunities, more data distribution. And what we recognize that there are a lot of organizations that are looking at some of the same things, what we've been quite successful on is sometimes they don't have to be another Trayport, although we are looking for another Trayport. But there also can be smaller things where we can take it in, integrate it and scale it up like we're doing with VisoTech, like we're doing with Trade Signal. Quite frankly, even on the trust business like we're doing with AST, integrated it and scale it up. And so that's a strategy you'll continue to see us do. Our balance sheet is in a phenomenal position right now to execute on opportunities. And then the team is very active in terms of looking at those inorganic accelerators.

So my next question was going to be on M&A and capital priorities. Maybe just like a little bit more color in terms of like the pipeline. Are you seeing private market valuations sort of coming down to match public market valuations? Is that an impediment having more challenges coming to agreement over the right valuation? How should we kind of think about what maybe to expect?

Yes, I call it private market expectations versus value. It's not a valuation to let someone buys it at that price. And certainly, we've been activating a number of assets that had that more private equity behind it and didn't get to the finish line in terms of valuation. They end up not transacting especially through 2021. So my expectation is I do think that we will see some closure in terms of that valuation expectation, especially as rates go up, the ability to lever things in that 7x to 8x range gets more challenging. There will be more expectation I think of assets that are held privately making their way into strategic holders. So we do believe that we can be quite competitive in terms of things that are coming to market. And then from our standpoint our balance sheet, I think our leverage is kind of in the 1.5x, 1.6x range. So I can bring on another $1 billion in debt to facilitate something. We've got a $2 billion shelf prospectus in terms of accessing the equity market. So we're well positioned to take advantage of opportunities and we're willing to pay the premium for a premium asset. The challenge I found through the last couple of years and I know if you found the same thing, is premium expectations for assets didn't have the growth profile to support them. And so if we're going to pay a premium on asset it's got to be something that accelerates growth in the franchise. It can't be premium spend for something that grows 2% to 3% and you can integrate it. We've been pushing the organization to continue to drive kind of mid-single plus in terms of revenue growth. I'm looking for assets to help do more of that and help extend our growth profile not to simply just add more size.

Maybe one final question, another maybe kind of a big topic. But if you can kind of boil it down. Can you talk about where the company is in the cloud journey? I know that's somewhere you've been active in the past. What does the business look like? What are your priorities right now? What does it look like in 5 to 10 years?

So it's funny. We were more active deploying cloud than deploying cloud announcements. We're actually in terms of how much of our business is deployed cloud already we're probably one of the leading marketplaces. Even before COVID all of our workflow productivity was already cloud-based. Actually one of the things that made it really easy for us to run the markets remotely as we've been a Google Suite client for years. So everything in terms of our productivity suite is cloud. Our market data business real-time is still a direct feed business. But market data, market data analytics, historical, we've been doing that through a cloud partnership for a number of years. It's actually one of our bigger cloud partnerships. We moved all of our workflow for managing the listed company relationships. So listings used to be a very paper-based and difficult piece of work. We moved that all to cloud-based workflow delivery prior to the COVID. And quite candidly, if it was not for that capability I don't know how we would have managed in a COVID environment with people working remote with the heaviest financing activity in 2021 that we had to be able to manage it all with the workforce as it was. And we didn't miss a transaction because we had that capability. So that's where we're deployed today. We're active in dialogue with all the major providers to really identify who would be the best partner for us to be the long-term partner to explore how we actually now take market data, trading and clearing and move them into a cloud-deployed solution. And for us, I think the real value is for a smaller market we make it easier for global players to come to us if we're deployed through cloud solutions. We make it easier for more businesses to co-locate with us and trade our marketplace. And that's the old advantage of what we're working on. So expect us to tell more as we get deeper into the relationships.

We're looking forward to that. Really appreciate you joining us.