NYSE Euronext Inc. has acquired a minority stake in a start-up venture firm – ACE Group Inc. – for undisclosed amount and terms. The buyout is an attempt by NYSE to diversify into the private stock placement business.
The private placements of stock is another form of raising capital or funds in which the equity, debt or other securities are sold to a small group of investors usually from mutual funds, pension funds, insurance and large banking institutions as well as high net worth or accredited individuals. In this case, the stock is not sold through open market operations. Moreover, the companies are not obligated to seek approval from Securities Exchange Commission (SEC) for initiating private placements.
Thus, ACE Group offers a high-quality online service platform that provides market data, stock information and other relevant risk management tools in order to help its private institutional investors identify valued investment opportunities.
Additionally, ACE Group actively works toward addressing the challenges faced within the private market, which include lack of centralization, regulatory challenges and limited scope. This 3-year old start-up firm is operated by a small group of experienced experts in financial services.
Hence, the deal appears a strategic fit as NYSE will enhance the technical capacities and operating leverage of ACE Group, bringing about efficiency and security within the private market operations. Moreover, the US private market itself records a turnover of over $1 trillion annually, offering ample opportunities for both NYSE and ACE Group.
At a time when the traditional equity and derivative trading platforms have been experiencing sluggish growth and business volatility due to the changing dynamics of the exchange industry, we believe NYSE should diversify into innovative business opportunities in order to retain sustainable growth in the future.
However, this is not the first time that an exchange giant tapped the private placement market. Earlier this year, Nasdaq OMX Group Inc. (NDAQ - Analyst Report) established a joint venture with SharesPost Inc. to form Nasdaq Private Market (NPM). Nevertheless, NYSE is likely to gain from this new revenue source, given its competitive edge and scale of efficiencies in the market.
While both NYSE and Nasdaq carry a Zacks Rank #3 (Hold), other outperformers in the financial sector include Fleetcor Tech Inc. (FLT - Snapshot Report) and CIT Group Inc. (CIT - Analyst Report). Both these stocks carry a Zacks Rank #2 (Buy).