A puzzling push for privatization
By Paul Mackintosh - 18/02/13
Reported talks between NASDAQ and Carlyle over a proposed privatization for the iconic US growth board briefly raised the possibility of a more-than-incestuous coupling. After all, Carlyle itself has been a NASDAQ listee since 2011, and Carlyle CFO Adena Friedman, who chaired the talks, according to Reuters, was formerly CFO of NASDAQ – and Carlyle is not the only firm to have had such conversations with the famous bourse recently.
Privatization of NASDAQ certainly makes sense from one point of view, exemplifying the much-rehearsed case for business model overhauls and refurbishment off the public stage. As the destination of choice for high-growth venture-backed companies back in its dotcom heyday, and progenitor of copycat DAQs worldwide, NASDAQ has been struggling somewhat lately. The reported motive for the buyout talks was its persistently underperforming stock price compared to its listed peers. And there are plenty of other negative factors to point to. The US SEC is still mulling NASDAQ’s proposed compensation offer to brokers allegedly damaged by its technical failures at Facebook’s public debut. Meanwhile, an eastwards push to secure more listings from Asia, which saw NASDAQ representatives regularly attending VC/PE conferences in Asia petered out, with NASDAQ-listed Focus Media, Fushi Copperweld and Harbin Electric all delisting or seeking to exit after accusations of accounting irregularities from activist investors. Carlyle (once again), FountainVest, Hong Kong’s Abax Global Capital and China Development Bank were among the capital providers for these eastward retreats.
NASDAQ’s own attempts to get out of its box have also seen varying degrees of success. Moves to diversify away from transactions revenue have apparently succeeded, but a hostile bid with IntercontinentalExchange for key rival NYSE Euronext foundered on regulatory opposition. ICE has now acquired NYSE’s parent, giving NASDAQ a welcome stock boost.
As I previously commented, though, some of NASDAQ’s woes surely come down to the widening cracks in the listing model itself. What kind of message is this cheerleader for public listings sending when it tries to go private itself? Of course, public and private status are mutually interdependent, and can be seen as the diastole and systole of a corporation’s life, but this initiative comes at an awkward time for the credibility of public markets per se, with institutions stampeding out of equities into bonds (and now, with equivalent foresight, stampeding back again … ).
It’s interesting, and even ironic, that one of the world’s star bourses is courting a suitor and a procedure that explicitly rely on the premise that public markets can be bad for your corporate and financial health. It’s also interesting to remark that talks with Carlyle apparently failed on differences of opinion over valuation, with NASDAQ apparently looking for more than Carlyle was willing to offer. Interesting too that NASDAQ’s move was reportedly prompted in the first place by public markets’ scepticism over the value of the platform. Do you see a pattern emerging?