The liquidators of stockbrokers Bloxham could only look on this week as the failed firm missed out on a second windfall at the Irish Stock Exchange (ISE) in less than four years.
The Dublin-based firm, whose licence was revoked in 2012 after it ceased trading amid a probe into financial regularities, saw the High Court dismiss its liquidator Kieran Wallace's case the following year, challenging an ISE decision to kick Bloxham out as a member.
It paved the way for a group of six surviving founder members to share a €27.5 million pot equally between them in 2014 as the exchange reorganised its structure.
On Wednesday, the remaining firms – since shrunk to five after Royal Bank of Scotland sold its stake – agreed to sell the 224-year-old bourse operator to Euronext, the pan-European stock exchange spanning Belgium, France, the Netherlands, Portugal and the UK, in a deal worth €158.8 million.
Davy will be the main beneficiary, with its 38 per cent stake in the ISE, followed by Goodbody Stockbrokers at 26.7 per cent, Investec at 18.5 per cent and Cantor Fitzgerald and Campbell O'Connor each at 8.4 per cent each.
Having spent the past two decades eschewing a wave of mergers and acquisitions in the global stock exchanges sector for fear that the activities in Dublin would be hollowed out by an overseas parent, will the brokers ultimately regret their dash for cash?
Established in 2000 through the merger of the Paris, Brussels and Amsterdam stock exchanges, Euronext went on two years later to absorb the Portuguese bourse.
The entity was taken over by the New York Stock Exchange (NYSE) a decade ago in an €8 billion deal, while the combined entity, NYSE Euronext, was subsequently taken over by the Atlanta-based Intercontinental Exchange.
The European operation regained its independence in June 2014 when the business was floated following an initial public offering.
Market ecosystems ‘destroyed’
ISE chief executive Deirdre Somers has spent much of her 10-year tenure railing against industry consolidation, arguing in the past that Euronext had "destroyed" the financial markets ecosystem in other cities.
She found herself in the uncomfortable position of having to defend those comments on Thursday at a press conference with her future new boss.
As Euronext chief executive Stéphane Boujnah smiled and sat back to see how Somers would handle the question, she said her “words in the past” reflected a very different Euronext of that time, when the company was under a different ownership.
“What struck us in our interaction with Euronext is just how passionate and committed they are to the development of the local ecosystems and empowering the real economy,” she said.
Somers said Euronext could make “no greater commitment” than its plan to make Dublin its group hub for the listing of debt, funds and exchange-traded fund securities, which the Cork native will head.
The ISE has become a world leader in these areas in the past two decades as the importance of its traditional share-trading activities diminished.
Euronext insists it has changed its approach since it managed in 2014 to break free, following seven years under US control.
“Between 2007 and 2013, during a period of de facto ownership by the New York Stock Exchange, the company was controlled from Wall Street and there was a process of eradication of substance from the countries, which was very painful,” said Boujnah.
“What we have achieved over the past three years is exactly the opposite of what the US management was trying to do here. We have empowered our country CEOs, each and every one of them, and [given] each of them group responsibilities.”
Defections to UK
The selling broker-owners of the ISE will be hoping that the exchange, under Euronext, will be able to stem the tide of Irish company defections to the UK in recent years.
A raft of Irish companies, including CRH, Smurfit Kappa, DCC, Greencore and UDG Healthcare, have moved their main listing to London or quit the ISE entirely to access a deeper pool of investors.
While the Iseq index in Dublin has rallied 260 per cent from its lows of 2009, it remains almost a third off its peak of a decade ago, and is dominated by three companies: CRH, Kerry Group and Ryanair. They account for half the entire market.
By contrast, many other markets and indices, including the world’s broadest gauge, the MSCI all-country index, are currently hovering around record highs.
Somers said the Dublin exchange could pull traffic in the opposite direction to the recent flow and entice UK companies to take out dual listings in Dublin as a result of Brexit.
Ireland and the UK, after all, have similar listing and corporate governance rules. They both operate in common-law jurisdictions and share a language and a time zone.
Sources said the ISE's move to seek out a strategic partner came to the fore after the UK referendum in June last year to exit the European Union.
"The ISE is well positioned to benefit from market opportunities post-Brexit," said Rosine van Velzen, an analyst with Dutch Bank ING.
“No one knows the outcome of Brexit,” said Somers. “One thing that’s pretty clear is that there will be implications for London as a centre for European capital markets and there will be a migration of activities from London to Europe.
" We believe the Irish Stock Exchange gives optionality [to Euronext]. I don't want to get into specifics because we don't know what problems need to be solved yet."
Pressures
Euronext is certainly paying up for the “optionality” provided by the ISE, which made a net profit of €8 million last year. But the Amsterdam-based company is facing its own pressures.
Having seen its market value rise as much as 170 per cent since its own flotation in June 2014, Euronext’s stock came off the boil last month as investors began to question whether Boujnah could pull off his new plan to double the company in size again in the next few years, and ease its dependence on the shares and derivatives trading.
Boujnah flagged during the summer that he had up to €2 billion to spend on deals. However, he has been having mixed luck securing his targets.
Euronext agreed earlier this year to buy French-based clearing house Clearnet from the London Stock Exchange (LSE) for €510 million, as the LSE aimed to ease competition regulators concerns about the impact of its planned merger with German rival Deutsche Boerse.
However, the LSE pulled out of the deal in March, after the European Commission blocked its Deutsche Boerse tie-up.
Last month, Euronext was beaten by the owner of the Toronto Stock Exchange in a race to buy energy trading software group Trayport in the UK, which ultimately sold for £550 million (€623 million).
Still, Euronext has managed to clinch some smaller deals this year, including the purchase of a 60 per cent stake in iBabs, a Dutch company that offers executive services to make meetings and governance more efficient, for €30.1 million, and 90 per cent of a currency exchange, FastMatch, for a preliminary $153 million (€129 million).
The announcement of an accord with ISE, which generates three-quarters of its income from debt and fund listings, has been well received by investors in Euronext. The stock has surged 4.8 per cent in Paris since The Irish Times broke the news online on Wednesday afternoon that an agreement was imminent between the companies.
Stable revenue base
"The deal is small, but the market is reacting quite positively to it," said Anil Akbar, an analyst with Dutch merchant bank Kempen & Co. Euronext "wants to diversify away from cash and derivatives trading, which can be very seasonal and volatile, to develop a more stable revenue base. This acquisition seems pretty good, considering the Irish Stock Exchange is a global leader in debt and fund listings."
Euronext expects to close the transaction by the end of March and that the ISE will be contributing to group profits within the first year. The Amsterdam-headquartered group plans to scrape out €6 million of annual cost savings by 2020, mainly by moving ISE technology onto Euronext systems.
Boujnah indicated that there would be a jobs shake-up at the ISE, which currently employs 135 people.
“There will be consolidation of central functions,” he said. “We will assess in the course of the integration process what is the best way to make the most efficiencies.
“There will probably be the creation of new jobs in fields and segments that are not covered today in the scope of the business of the Irish Stock Exchange, and some jobs will also disappear in things that can be done at group level in other places. And there will also be a third type of job that will be created, maybe some central functions that may be better suited here in Dublin than any other places of the group.”
Euronext has also signalled to analysts that integration costs will total €9 million during the period. It is believed that much of this relates to moving from ISE’s existing trading technology, provided by Deutsche Boerse, on to the new owner’s systems.
Food sector
Euronext plans to target the Irish food production industry by offering futures and options trading in agriculture commodities in order to manage companies’ exposure to potentially volatile raw material prices. It also aims to launch derivatives products, where investors can bet on the future price of Irish shares and stock indices.
Back among the ISE’s selling investors, Brendan O’Connor, a director of Ireland’s smallest stockbroker, Campbell O’Connor, whose business will benefit proportionately more than larger rivals from the proceeds of the Euronext deal, said he saw share trading in Dublin being helped by the transaction.
The ISE has had some success following the financial crisis, luring real-estate investment trusts such as Green Reit, Hibernia Reit and Irish Residential Property Reit as well as housebulders Cairn and Glenveagh on to the exchange.
It also hosting one of the world's largest flotation's this year, that of AIB, through which the State raised €3.4 billion via the sale of a 28.8 per cent stake in the bank.
“There’s a good buzz in the Irish market at the moment,” said O’Connor. “I think we’ll continue in that vein.”
Management at the ISE are also set to receive a windfall as a result of the deal. The company's director of strategy, Aileen O'Donoghue, director of traded markets Brian Healy and director of international primary markets Gerard Scully were heavily involved in the Euronext talks, which entered an advanced stage about six weeks ago.
“The group has a scheme in place whereby members of the senior executive management team may receive a cash payment if there is a significant change in the ownership of the company,” the company’s 2016 annual accounts state.
There should be no shortage of executives willing to pay for drinks at this year’s office Christmas party.
