Just about 10 months ago the deal was
announced to sell Icap’s voice business to Tullett Prebon and at that time, in
this column, I suggested that a consequence of that deal would be an easier
path for anyone looking to buy Icap’s electronic business, subsequently
revealed to be named Nex.
Obviously I cited an exchange as the most
likely buyer and it seems, if the headlines of last week are anything to go by,
that the pieces are being moved into place. Moving pieces is, however, very
different to an actual deal – what are the chances of that?
As noted by our
report last week, Nasdaq is whispered to be sizing up a deal for the re-named
electronic markets and processing firm.
Nasdaq is a firm that has had a patchy
relationship with FX over the years with multiple attempts to create a business
struggling to gain headway, so it would make sense for the firm to buy it’s way
into the market. It is unlikely to have a clear run at the Nex business,
however – should it actually move ahead with a deal – because CME and ICE to
name just two, are exchange businesses that would be interested in not only the
OTC execution piece but also, more pertinently perhaps, the post-trade
There has – inevitably – been much
attention focused on EBS’s declining volume numbers, with some suggesting to me
that this makes the Nex brand less expensive for buyers. I think this misses
the point; namely that while the ADV has dropped quite alarmingly – and it
cannot be ignored that the decline has outstripped the broader trend – EBS in
particular is a multi-faceted business where just four years ago it wasn’t.
More product lines means more opportunity,
opportunity is potential, potential is reflected in additional dollars on the
I also think the aforementioned argument
ignores the tremendous value from the post-trade business and while Traiana is
clearly an important factor, I see the compression services of TriOptima as
being even more important, especially if FX swap portfolios can be compressed.
The growth in FX markets, such as it is, has been in swaps and I have long said
that the really big battleground for platforms will be in this area. Having the
compression services and being able to position that with a clearing house could
be a very powerful driver of growth in electronic trading of FX swaps – and
whoever wins that race will be an a very strong position.
So I do not necessarily see Nex as being
cheaper that it was 10 months ago when I first suggested it could be in play –
but it is cheaper, to repeat myself from last November, than the current Icap
business with the large voice/hybrid element.
Away from who may buy the company and for
what reason, one aspect of this story that is too often ignored is the
willingness of the owners of Nex to actually sell it. Speaking to people who I would
term “informed” about the situation I get mixed messages. On one hand there is
a school of thought that this is Michael Spencer’s new pet project and as such
it would take “silly money” as one source puts it, to prise it out of his
The other view is the decision may be taken
out of Spencer’s hands if the rest of the shareholders want to do a deal. As
one acquaintance said to me recently, Spencer’s roots are in the voice broking
business – it’s what made him successful – and he was reluctant to do the
Tullett deal but was forced into it by the other shareholders.
If that is the reality of the situation
then no-one can convincingly argue that a bid for Nex will be unsuccessful.
I see no reason to change my view from last
year that Nex is very much available, however there is one very important aspect
of such a deal that has changed in that time. Put simply, financial markets
activity across the board is down, so will a provider actually be willing, or
able, to stump up the appropriate cash?
In terms of ability, yes they can, but the
willingness? Well the buyer would have to have a long term optimistic view of
the world and believe that the impact of the changing market structure will not lead to a prolonged, perhaps
eternal, decline in volumes.
As things stand now, Nex is still a very
attractive target, but I wonder if the buyer will want to swallow what could be
a pretty large bill to buy it? The smart play may be to sit back and watch for