(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Antony Currie
NEW YORK, April 2 (Reuters Breakingviews) - Nasdaq OMX
(NDAQ.O) may be paying the price of dealmaking gone wrong.
Nearly two years after failing to supersize itself by acquiring
NYSE Euronext's NYX.N equities business, the bourse is aiming
smaller with a $750 million plan to buy eSpeed, an electronic
bond-trading operation. Investors erased 90 percent of the price
tag from Nasdaq's market value. The excessive skepticism ignores
the target's income and the buyer's cost discipline.
It's an expensive deal, for sure, at almost 11 times last
year's EBITDA. True, it's less than the 13.3 times of trailing
revenue Thomson Reuters (TRI.TO)(TRI.N) – the parent company of
Breakingviews – paid for FXall, an electronic foreign exchange
service. And corporate bond electronic trader MarketAxess
(MKTX.O) is trading at almost 15 times. For Nasdaq, however,
which is valued by the market at just six times EBITDA, it's a
Moreover, the real prize of owning eSpeed will come from
expanding into other fixed-income products like corporate bonds.
There is a lot of pressure for these markets to go electronic.
Wall Street needs to cut costs. And new capital charges have
prompted banks to create markets in fewer products, making it
harder for investors to trade.
Competition is of course rife. Aside from MarketAxess, most
banks are trying to push electronic bond trading, the NYSE is
rolling out products and bondholders like BlackRock (BLK.N) are
developing platforms. So, too, are non-bank and non-asset
management players like TradingScreen.
The crowded marketplace makes shareholder wariness
understandable, though they could be overlooking some important
aspects. While eSpeed's top line last year, at $99 million, will
fluctuate with investor appetite, it shouldn't suddenly dry up.
Nor is the company baking new revenue into its assumptions:
Nasdaq reckons current volume will be enough to boost its
earnings within 12 months.
More importantly, Robert Greifeld's trouble with big deals –
in addition to regulators torpedoing the NYSE transaction, he
failed in a 2006 bid to buy the London Stock Exchange (LSE.L) –
he has proven more adept at smaller ones. The Nasdaq boss also
has shown remarkable discipline at keeping costs under control.
His 20 percent net margin last year, for example, exceeded the
NYSE's 16 percent. Buying eSpeed may not be a game-changer for
Nasdaq, but neither is it the disaster investors fear.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Nasdaq OMX agreed on April 1 to buy electronic Treasuries
trading platform eSpeed for $750 million in cash and an earn-out
of up to $484 million in stock. The latter portion is to cover
tax benefits from the deal that will accrue to Nasdaq and will
be paid to the seller, BGC Partners (BGCP.O), over 15 years.
- Nasdaq expects the deal to enhance its earnings within 12
months. Revenue for eSpeed in 2012 was $99 million with EBITDA
of $69 million.
- Nasdaq press release: link.reuters.com/sus96t
- BGC Partners press release: link.reuters.com/tus96t
- Reuters: Nasdaq to buy eSpeed platform for $750 mln
Taking public market private [ID:nL1N0BC88Q]
- For previous columns by the author, Reuters customers can
click on [CURRIE/]
(Editing by Jeffrey Goldfarb and Martin Langfield)
Keywords: BREAKINGVIEWS NASDAQ/ESPEED
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