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ICE to Sell Parts of NYSE Technology - And Why Not?

If ICE can't assimilate or find a structural reason to keep hold of the acquired technology, it should go.

IntercontinentalExchange Group CEO Jeff Sprecher has hired Evercore Partners Inc. to sell off parts of the NYSE technology businesses acquired in the takeover of NYSE Euronext. Deals are expected to be presented to potential buyers in the latter half of January.

According to Bloomberg Businessweek's sources, ICE may approach potential buyers including Fidessa Group Plc, Investment Technology Group, KCG Holdings, Interactive Data Corp. and Bloomberg News. Businesses for sale may include Nyfix, SuperFeed, Wombat and Metabit.

[For more on the takeover see Uncertain Future For NYSE Technologies]

David B. Weiss, senior analyst with Aite Group says these divestments should not be a surprise. Sprecher is a very focused, pure play kind of leader. With his eye on interest rate futures and US stock exchange he will rapidly integrate relevant technologies to leverage those projects. The rest is simply baggage.

Data Centers

In this light, it's curious ICE is holding onto NYSE's data centers. Perhaps ICE plans to shake up the data center workload, but why would Sprecher even bother? Surely ICE wants people to connect to them, not be the host of data. It seems an unnecessary ordeal with the accompanying challenges of real estate and generators when third party data centers are available globally for rent. Even Nasdaq's acclaimed FinQloud is hosted by Verizon.

"Maybe they want the real estate," guesses Weiss before adding, "I don't expect data centers will be long for life under them."

A Better Question: What will ICE Keep?

For a firm with razor focus and great success in the markets, perhaps the question should not be on why they are getting rid of these businesses, but rather on why they are keeping others.

A notable example of ICE impressive technology integration include the acquisition of the communication network YellowJacket. Today it is known as the popular ICE Chat for instant messages in the derivatives market.

Another interesting question is who will buy ICE's baggage? It was reported ICE gave little valuation to NYSE technology in the acquisition, explains Weiss. "If one of the smartest guys in the market says he doesn't think it's worth much, who is going to buy it?" Yes, there is a lot of great technology under NYSE, but some of it has had its time.

Closing the Door

Today, like other industries, exchanges have learned to compartmentalize and license out processes and product. But as one of the forefathers of the industry responsible for trailblazing much of today's tools, it shouldn't be a surprise NYSE has accumulated the biggest inventory of technology and services over the years. The ICE acquisition is a chance to clean out the closets.

Indeed, ICE is a much younger company, focused from the start, and never had to worry about the things NYSE historically has. "It shouldn't be surprising to anybody that there's going to be some rejiggering of these two companies," says Weiss. "One is new and focused, the other is the granddaddy of exchange groups. When you put focus on the grandaddy, there's going to be some things that are discarded, sold off, and wound down. Most things they keep are going to be fundamental to what they do."

"The sprawling offerings model is history… The notion of big technology complexes being part of an exchange group's personality is over." Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

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Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
1/15/2014 | 11:52:56 AM
re: ICE to Sell Parts of NYSE Technology - And Why Not?
That's a great point. Many analysts were lauding the acquisitions made by NYSE and Nasdaq during the past few years, saying the moves would help diversify their revenue streams. Also, a big chunk of NYSE Tech's assets are tied up in the 2 big data centers. Nasdaq has made it pretty clear it is more comfortable using Verizon to host it DC. Maybe ICE will break up NYSE Tech into many pieces to sell it, but i'm sure it would love to get rid of the 2 DCs quickly, as they are expensive big ticket items.
IvySchmerken
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IvySchmerken,
User Rank: Author
1/14/2014 | 8:23:26 PM
re: ICE to Sell Parts of NYSE Technology - And Why Not?
You don't hear of many (or any) exchange technology deals lately. Nasdaq OMX's CEO told Reuters recently he is interested in buying index businesses in 2014, such as Russell or Barclays plc index businesses when they come up for sale. No mention of technology businesses here.
The Insider
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The Insider,
User Rank: Author
1/14/2014 | 6:55:34 PM
re: ICE to Sell Parts of NYSE Technology - And Why Not?
I completely agree with Ivy. The basic factor in play is not that ICE is new and NYSE is old. The issue is that these investments lost political cover provided by departing NYSE executives. The market value of all of these investments has been lost over time but NYSE could not do much given the entrenched management structure. The quoted Aite analyst does not mention that his firm and other similar firms have been saying since 2010 that the future of exchanges lies in selling technology. How can he explain that ICE does not think this is the case? It is interesting to see that NASDAQ OMX was not mentioned as one of the potential buyers. I wonder why?
IvySchmerken
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IvySchmerken,
User Rank: Author
1/14/2014 | 2:48:42 PM
re: ICE to Sell Parts of NYSE Technology - And Why Not?
I think "cleaning out the closets" is a good metaphor for what ICE is doing with selling off parts of NYSE Technologies. On the other hand, this dismembering is also about fundamentally disagreeing with the business strategy of NYSE Euronext to acquire all of these market data and infrastructure businesses. These decisions were made in 2005/2006 when equity volumes were growing, which is not the case at least in US equities, which declined 3% in 20013 from 2012. As far as technology being old, Wombat was acquired for $200M in 2008, but the company was founded in 1997 and let's say it's products entered the market in 2000. Fourteen year old technology is not going to be a hot seller when there are cloud-based market data providers available. Interestingly, NYSE Technologies has developed its own Capital Markets Cloud, to deliver market data, so why isn't this working?
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