Exchanges eye deals for growth, but not big M&A

NEW YORK (Reuters) - Exchanges are hunting for deals as they search for growth and scale, but the consolidation rush of the era before the financial crisis may not return anytime soon, top industry officials said this week at the Reuters Global Exchanges and Trading Summit.

NYSE Euronext (NYX.N), London Stock Exchange Group Plc (LSE.L) and IntercontinentalExchange Inc (ICE.N) all said they are looking at acquisitions as a way to tap high-growth areas, in terms of products and geographies.

"You hope that what you do is create something that in the end is bigger and gets you there faster," NYSE Euronext Chief Operating Officer Larry Leibowitz said.

NYSE Euronext, which bought NYFIX Inc last year to improve its trading platform, is looking to build out its technology business and focusing on derivatives.

LSE, which recently bought a majority stake in European alternative trading platform Turquoise, is eyeing deals and wants to make more of its half stake in the FTSE Group of indexes.

Chief Executive Xavier Rolet said he may pursue acquisitions to build the post-trade services business, which includes services like clearing, settlement and securities custody.

The exchanges sector, however, has been relatively quiet over the last two years amid the global financial crisis after seeing a flurry of consolidation activity that created global behemoths such as NYSE Euronext and Nasdaq OMX (NDAQ.O).

"Given the amount that occurred in a short time and then the crisis, it is not surprising that things have calmed down," said Chicago Board Options Exchange Chief Executive William Brodsky.

"Consolidation on a macro sense with exchanges is not over," Brodsky said. "When you are running exchanges now, you are really running technology companies and there are economies of scale in having more business pushed through a single platform."

CBOE DEAL

In fact, Brodsky's options exchange is one of the hottest buyout candidates as it prepares for an initial public offering.

Brodsky declined to comment on the pending IPO or any talks.

Potential buyers, as they typically are in such situations, were coy about their interest in CBOE.

CME Group Inc (CME.O) pointed only to differences between the two, such as a different system of regulation.

"Those are not bad things," Chief Executive Craig Donohue said. "Those are just differences, at least in terms of historically the types of consolidation that we have accomplished."

NYSE Euronext's Leibowitz said while sellers typically have knocked on its door, price is a key concern and the roughly $5 billion value being bandied around last year for CBOE is too much for it to pay.

"I don't know that we have a preconceived notion, other than that they seem to be leaning toward an IPO first rather than a transaction," Leibowitz said.

ICE Chief Executive Jeffrey Sprecher said he is glad the CBOE management is "going to have an opportunity to go public and run the company."

"They have wanted to have a more independent governance and wanted to give their members access to public markets for liquidity purposes," he said. "They have been on that path now for a few years. I am anxious for them to see it through."

1+1=WHAT?

Consolidation is not on everyone's minds though. BATS Global Markets, a four-year-old company that is nipping at the heels of the New York Stock Exchange and Nasdaq Stock Market, feels organic growth is still the way to go.

"It's inevitable for some firms, but for us where we're at today, we're pretty happy with growing organically," Chief Executive Joe Ratterman said.

"Others that try to buy their way into large positions I think typically end up -- it's usually one plus one equals 1.5, not two," Ratterman said. "The more mergers, I think, the better -- as long as they don't involve me."

Moreover, while in the past mergers have been a path to international expansion, such deals are difficult amid political and other concerns. Often stakes is the way to go.

Brazilian exchange operator BM&FBovespa (BVMF3.SA) said last month it would raise its interest in CME Group to 5 percent from 1.8 percent, matching the stake CME holds in it.

"It forms a closer bond, more trust, greater willingness to take risks together and work together," CME's Donohue said. "It's not the only way that we would partner with other exchanges but it's, I think, clearly a smart way for us to do that."

Nasdaq is selling its one-third stake in Nasdaq Dubai to Dubai Financial Market DFM.DU. The deal will leave Nasdaq with a 1 percent stake in Dubai Financial.

The search for growth will still drive acquisitions, though.

"We are owned by institutional investors who have us in their growth funds. And those are the people I work for," ICE's Sprecher said. "We are looking for asset classes that we think are going to continue to grow."

(Additional reporting by Christian Plumb, editing by Gerald E. McCormick)