One of the most profitable investment themes this decade has been the global stock exchange merger and acquisition story. From New York to Frankfurt, bourses have been aligning themselves with partners to boost product revenues and increase trading volume. It’s been a superb place to invest – until the party ended last fall amid subprime woes.
I’ve avoided the stock exchange merger story for the last few years because prices were just too high. Cross border bids became almost ludicrous on some deals while others stalled as parties tried to secure financing. This was a classic “bubble” with investors and institutions jumping at any price, driving multiples way above reasonable valuations. Then came subprime and global markets headed into the basement.
One of the highest profile cross border deals this decade is NYSE Euronext (NYX-NYSE). The NYSE merged with Paris based Euronext in 2006. It’s now one of the largest and most profitable stock market platforms in the world offering a prestigious exchange for listed companies and the highest trading volume liquidity.
But, I would not buy NYSE Euronext at this price, despite good earnings in Q1. Instead, look to bourses in Asia and Europe, which have posted sharp declines over the last nine months. Some of these stock exchange operators pay dividends in strong currencies in excess of 4% and trade about 25% to 50% below their all-time highs last summer.
The trend in cross border stock market mergers won’t end any time soon. This is one cash cow that should continue to easily attract financing amid a credit crunch. Many players are now attractively priced and I’m starting to accumulate positions. I’ll go into greater detail in upcoming TSI issues.
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