Silver Lake Dual Tracking Instinet

Includes: HSBC, NMR
by: Steven Towns

In today's Wall Street Journal, Jed Horowitz comments on the future of the broker-dealer unit of Instinet in: Silver Lake Partners Plans Sale Or Public Offering of Instinet.

Private equity firm Silver Laker Partners and Instinet management, the latter which collectively own between 25-33% of Instinet (that is the broker-dealer unit for institutional investors of which Silver Lake owns a majority interest; Nasdaq owns Instinet's electronic marketplace) are looking at selling the firm or taking it public less than a year after Silver Lake purchased it for $208 million last December.

According to Instinet CEO Edward Nicoll, it has already received unsolicited offers from at least three potential buyers. Evercore Partners is involved on the sale side while Instinet itself is meeting with investment banks to discuss an IPO. Note that Nicoll said it is possible there could be no deal at all even though it is dual tracking (marketing itself for sale to buyers and simultaneously preparing an IPO).

Since it went private last year Instinet has reported record trading volume with surprisingly strong growth coming from overseas. Instinet said its Q2 average daily trade volume totaled 3.7% of all trading activity in U.S. stock markets and about 2% on the Tokyo Stock Exchange.

Comment: This article is somewhat misleading in that only a portion of Instinet is for sale or to be listed -- the broker-dealer unit. My first reaction was that the Tokyo Stock Exchange itself might be interested. However, that wouldn't be the case since the Nasdaq (NASDAQ:NDAQ) controls Instinet's electronic marketplace. Further research (click here for related Times Online UK article) suggests a traditional broker-dealer from Asia might be interested, such as Nomura (NYSE:NMR) or HSBC (HBC).

Another possibility that seems reasonable is a purchase by any member of, or one of the various groups that have gone after regional stock exchanges in the U.S. Since Instinet caters to institutional investors it makes sense for one of these groups to make an offer for an established platform. For reference see "Wall Street Firms to Buy Electronic-Exchange Stake" from the WSJ published on August 17th -- Citigroup, Merrill Lynch, Bear Stearns, and Credit Suisse reportedly close to buying a 50% stake in the all-electronic National Stock Exchange.