The London Stock Exchange today unveiled the largest acquisition in its history, snapping up US group Frank Russell for $2.7 billion.

The deal will boost its position in the world's largest financial services market and sent its shares surging. 

Europe's oldest independent bourse said it would fund the long-awaited acquisition of the index provider and asset manager, which analysts have described as strategically sound, with a $1.6 billion rights issue and debt. 

It said the deal, which catapults it into third position in the booming market for exchange traded funds (ETFs) behind global market leaders S&P Dow Jones and MSCI would boost earnings in the first full year. 

The acquisition, which requires approval from regulators and shareholders, would also create a powerful index compiler with around $9.2 trillion of benchmarked assets. 

"With this acquisition, we are strongly positioned for the changing dynamics in the global indices market with a best in class offering, which we believe will help deliver outstanding returns for our shareholders," said LSE Chief Executive Xavier Rolet. 

Analysts welcomed a deal that gives the London bourse a market share of around 13% in the booming ETF market - passive and low-cost funds that provide an alternative to active fund management.

The LSE, which said in May it was in exclusive talks with Russell's owners Northwestern Mutual about a possible purchase, said the enlarged company would yield annual cost savings of $78m and boost annual revenues by $30m by year three. 

Annual revenues would rise by almost $50m by year five, it said. 

The bourse said it was reviewing the position of Russell's investment management business, which has $256 billion in assets under management, but declined to comment on the options for a business analysts say does not provide an obvious fit.

Under the terms of the deal, Russell's chief executive Len Brennan will join the executive committee of LSE.

The rights issue - the LSE's first ever - is expected to be launched in September following shareholder approval of the acquisition.

Northwestern Mutual began exploring a Russell sale in January after deciding it was no longer a core part of its business. Reuters reported in April that Canadian Imperial Bank of Commerce, MSCI and several private equity houses were considering bids.