Breakingviews-Nasdaq both good and too good as LBO target
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Antony Currie
NEW YORK, Feb 12 (Reuters Breakingviews) - Nasdaq (NDAQ.O) is a good target for a leveraged buyout – but in one way, perhaps too good. The U.S. bourse, which also operates exchanges in Europe, recently held fruitless talks with private equity firm Carlyle Group (CG.O). A sum of the parts suggests it may be worth at least $7.5 billion – almost 50 percent more than its public market value. That kind of gap ought to lend itself to an LBO.
The most valuable business unit is market data. It's worth some $3.3 billion, based on the 48 percent net margin in 2011 and a trailing price-to-earnings multiple of 20 times earnings -a blend of MSCI and Thomson Reuters.
Nasdaq's derivatives platform could be worth around $1.5 billion, assuming a 35 percent net margin and a 15 times earnings multiple, a discount to InterContinental Exchange (ICE.N). The Issuer Services and Access and Broker Services units, with margins between 20 percent and 24 percent, should be worth around $1 billion each. And market technology, which has the lowest margin in the group at around 10 percent, could fetch $300 million.
That leaves the business Nasdaq is best known for: cash equities. This represents some 12 percent of the top line and around $500 million of value, assuming a 25 percent net margin and a 10 times multiple. It's also a drag on the company's image, with revenue plummeting by a fifth last year. That may help explain why the exchange's shares seem to trade at such a discount even after a 20 percent boost since the NYSE Euronext-ICE (NYX.N) merger in December fueled deal talk.
Financing a buyout looks feasible. Suppose Nasdaq went for a 30 percent premium, or about $6.5 billion. Add net debt, and the enterprise value would be about $8 billion. With 40 percent of that covered by equity, the required total debt would add up to a bit over five times estimated EBITDA – a do-able multiple in today's markets.
But unlocking value will be hard even for buyout barons. Nasdaq's six divisions benefit from being part of one organization and may be worth less broken up. Nor is there much fat to cut. With a net margin above 20 percent, compared with the NYSE's 16 percent, Nasdaq is already efficiently run. That may already be too good to leave the buyout barons much to work with.
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- Carlyle recently held talks with Nasdaq OMX about taking the exchange private. These ended after representatives for the private equity firm and the bourse could not agree on price. The story was first reported by Fox Business News.
- Nasdaq 2012 earnings release: link.reuters.com/rur85t
- Nasdaq OMX Investor Day 2012 presentation: link.reuters.com/qur85t
- Reuters: Nasdaq talked with Carlyle about going private-sources [ID:nL1N0BB5V9]
Cutting losses [ID:nL1E8NK2T3]
- For previous columns by the author, Reuters customers can click on [CURRIE/]
(Editing by Richard Beales and Martin Langfield)
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