Wednesday’s Financial Times reported that the Qatar Investment Authority (QIA) no longer seeks to increase its stake in the Nordic exchange OMX. This step leaves a joint offer by Borse Dubai and Nasdaq as the likely buyer of OMX, through a multi-step process. The process involves Borse Dubai purchasing the Nordic exchange and transferring it to a Nasdaq in exchange for (i) equity in a new JV and (ii) equity in the London Stock Exchange (LSE). The end result is that Borse Dubai is poised to end up holding pieces of both OMX and LSE, with Nasdaq as its partner.
Snatching up an exchange is, of course, a high profile acquisition. This begs the question: are Gulf buyers chasing exchanges as “trophy assets” or are there financial and strategic benefits to such transactions?
It appears, in fact, that investments in exchanges can – if approached properly – can yield both financial and strategic rewards. The exchange sector is evolving rapidly, with rapid consolidation occurring (it is, after all, a scale, network, and technology-driven industry). Being either the driver of M&A activity or an attractive target can lead to significant financial rewards.
The more interesting rewards for Gulf buyers, however, are the strategic ones. First, access to exchange capabilities and technology can be a source of advantage as GCC cities vie to position themselves as international centers. While exchange capabilities alone will not draw the listings, investors, and talent required to be a major global exchange, they are at least a start. It’s no surprise, therefore, that the two countries pursuing OMX were Dubai and Qatar – both of which have established free zone financial centers with global aspirations. It’s also not surprising that the QIA is already a large shareholder in LSE.
(For more on the region’s evolving financial centers and exchanges, see Chapter 8 – “Capable Capital: the GCC as a Source of Capital” – of Dubai & Co.)
In addition, partnering with Nasdaq for the transaction is a highly savvy move. Not only does it give Borse Dubai eventual holdings in both OMX and LSE, but the cross-holdings place Borse Dubai squarely within a prestigious club of established exchanges. The affiliation brings credibility and “insider” status – increasingly important as wariness of foreign buyers grows in some quarters.
With its growing wealth, the Gulf could no doubt afford some “trophy assets.” Borse Dubai’s investment in OMX and Qatar’s stake in LSE, however, appear to offer more than marquee status if approached strategically.
With the gradual “death of distance” due to the internet, in my view eventually the competition between exchanges will be decided by the quality of regulation (not to onerous and not to light, but “just right”) and the quality of technology and settlement systems.