Where To Go Public - Is it All Location, Location, Location?
What factors influence identifying the best location for a company to access capital? Should it be in its home country or on a distant global exchange? NYSE Euronext’s co-head of U.S. listings and cash execution discusses trends and strategies for companies planning their public debut.
By Ellen M. Heffes
Every tourist map of New York City proudly displays the historic New York Stock Exchange at the tip of Wall Street, the icon that exemplifies capitalism itself. But over the past seven-plus years, NYSE Euronext Inc. has become a different business from one primarily involved in listings, trading and regulating financial markets alone.
Scott Cutler, executive vice president and co-head of U.S. Listings and Cash Execution for the exchange, recently spoke with Financial Executive’s Editor-in-Chief Ellen M. Heffes about the business of the exchange itself, as well as the factors involved with listing on the Big Board.
What’s changed about NYSE — and the general perceptions many hold about its business?
Cutler: Listings is only one facet of the business of NYSE Euronext today. Seven years ago our business was pretty simple. It was listings, trading and regulating.
Today that business is global — we now have listings platforms around the world. Besides here in the U.S., we are also running exchanges in Paris, Lisbon, Brussels and Amsterdam under the Euronext umbrella. We also have a derivatives business, the London Liffe Futures Exchange, as well as a growing technology solutions business that provides market data and connectivity to platforms.
So our business has become a lot more complex and broad.
To put it in a global perspective, in the U.S. we have about 2,200 corporate issuers listed on our platforms, and we have a nearly equivalent amount on our European platforms.
We have been in the business of raising capital dating back to 1792, so capital-raising is at the forefront of many of the things that we’re involved in.
For example, last year we raised $33 billion in IPO capital proceeds and nearly $200 billion in equity financings on our platform — ranking as the number one global exchange in all those categories for 2011. So the listings business continues to be a very important part of the NYSE Euronext brand today.
What can you report in terms of numbers?
Cutler: It’s a complex business, in which we’re processing nearly $2 trillion worth of transactions across all of our platforms and products on a daily basis.
We trade on the equities side daily significantly more than what eBay will do in an entire year. Additionally, for perspective, consider we are doing two and a half times the number of transactions as Google will do searches in a day.
The technology underpinning the financial markets on which we operate on a global basis is at the forefront of transaction processing and certainly the amount of volume that we trade on these platforms is massive.
How do you link economic activity and the role of exchanges in initial public offerings?
Cutler: If you were to take the combined market capitalization of all of our listed companies, it would be the largest economy in the world. So when we think about our business, it truly does represent capital markets; it represents employment and growth and a massive percentage of the GDP certainly in the United States.
For us, the strategy is really about how we leverage that community for the benefit of the community itself, which means we try to leverage it to advocate for things that are happening around regulatory reform, capital market reform, taxes or immigration policy.
Advocacy on the regulatory front has been a core part of our value proposition over the last couple of years and we’ve been stepping up our efforts in Washington on the regulatory front.
We also have the view that we are an important part of the fabric of the U.S. economy. For example, we recently launched the “NYSE Big Start-Up,” which is really a jobs initiative designed to leverage the power of this leading community and direct it toward entrepreneurial businesses and job creation.
With the Big Start-Up, our goal is to leverage the experience, resources and commitment of corporate America within a framework that makes a positive and lasting impact through collaborative engagement. Thus, we view our role as significant in terms of the platform itself but also the opportunity to lead in areas such as job creation.
Is there then a connection between the number of IPOs and the state of the economy?
Cutler: IPOs are largely a reflection of innovation and new capital creation in the markets globally, and 25 percent of the IPOs in our marketplace come from international venues. These are companies that are looking to raise capital to expand their business opportunities and they’re looking to U.S. institutional or retail investors in order to do that.
Particularly over the last couple of years the U.S. as a venue to raise capital has proven to be the most attractive location in the world. It’s still the deepest pool of liquidity and it has also provided certainty of execution, which has, I believe, driven a great deal of international companies to look to the U.S. as a primary source for initial public offerings.
What is the effect of regulations in attracting global IPOs to the U.S.? Has the U.S. decreased opportunity by raising the regulation bar too high?
Cutler: Regulations in the U.S. had no impact on capital creation and the formation of capital markets in other places around the world. Ten years ago, there was no capital market in Asia other than Hong Kong. Shanghai/Shenzhen didn’t exist. Brazil didn’t have a robust capital market then. Many of the other emerging markets had no capital market.
You couldn’t raise a significant amount of capital in those markets domestically, but today you can. That is not a result of U.S. regulation at all.
It’s important to note that in the last 10 years the capital markets have become global and are only going to increasingly be that way.
But regulation has had an impact on the cost of going public in the U.S. marketplace. And while I do believe that many of the regulations were put in place for good reasons, some of the unintended consequences have been the costs associated with being a public company.
These costs, along with a difficult business environment and litigation, as well as other factors, have meant that the public markets in the U.S. have not been the most accessible place for smaller companies.
How do you expect the Jumpstart Our Business Startups (JOBS) Act will level the playing field for smaller companies?
Cutler: First and foremost from a public policy perspective, we need markets that are transparent, regulated and fair to all investors. We are 100 percent supportive of that. NYSE Euronext was supportive of the JOBS Act and worked very hard on Capitol Hill to advocate for this bipartisan legislation, which is designed to create a five-year on-ramp for emerging growth companies to comply with certain disclosure requirements and from Section 404(b) of the Sarbanes-Oxley Act.
This is viewed as a victory on the road to open the capital formation process to more companies seeking to expand their business and help spur economic growth and promote job creation.
What differentiates the capital markets around the world?
Cutler: Generally speaking, companies go public in the regions in which they are domiciled. And it really is only typically global companies that will look for venues outside of their domestic jurisdiction to raise capital. To the extent there’s not a capital market in that jurisdiction, for example, Argentina, those companies will come to the United States to raise capital.
In terms of major capital centers that attract capital from international venues, it still is the U.S., the United Kingdom and Hong Kong that accept issuers from outside of those jurisdictions. All other marketplaces are largely domestic exchanges or marketplaces.
When a multinational company wants to list, what geographic and location factors go into the decision?
Cutler: It comes down to a strategic decision in terms of nexus of investors, nexus of capital, nexus of customers. That’s probably the principal reason that most companies will choose a certain geography in which to raise that capital.
For example, say 80 percent of the business is in Asia and 80 percent of the growth opportunity is in Asia, it’s likely that you would consider Asia as a place to raise capital.
But long-term, why I think the U.S. market remains probably the most competitive globally is that it’s still the deepest capital market of anywhere in the world, with the deepest set of investors, also with a marketplace that has the highest level of standards and transparency and credibility of any market in the world.
So I do believe that that’s the reason why companies from around the world will continue to look at the U.S. as a primary place to raise capital. It’s not going to be the only place, though.
Discuss the NYSE Euronext’s competitive strategy in attracting listings.
Cutler: We compete very aggressively here in the U.S. because we have another competitor for listings, so anything coming to the U.S. has choices. For most other marketplaces there isn’t a multiple choice of venues to list.
As we compete globally for that capital, it really does come down to our brand, our credibility and leveraging the power of this global B-to-B community that we can provide business and investment opportunities to. We are a global brand with a global view. We actually have more listed companies outside the U.S. than we have inside the U.S., so we’re not a U.S.-centered business in any respect.
New York is the financial center of the world now, but with technology and other growing areas for capital-raising, how do you envision the city’s future role?
Cutler: New York is the financial center of the world. However, the world has become more global; capital markets have become global. The fact that Brazil is exploding as a market, India is exploding, Eastern Europe is exploding, Asia is exploding — all that doesn’t mean the U.S. is failing.
We still operate the most liquid, deepest marketplace anywhere in the world. You look at the amount of capital that we’re raising, the amount of follow-on capital that we’re raising; it is happening here in the U.S. and it’s going to continue to be the case.
We’ve certainly read and heard contrary opinions.
Cutler: People who say that have no appreciation for what’s happening on a global basis. There’s no appreciation that a company like GE is a U.S. company but only 30 percent of its revenue is in the United States — 70 percent of it is coming from outside the U.S. So GE is a global company. NYSE Euronext is a global company; more than half of our revenue comes from outside of the United States, so we’re not just a U.S. company.
When people talk like that they really don’t understand that most of the companies operating today are operating on the basis of making global decisions about where to invest capital, where to raise capital, where to make acquisitions based on the growth profile of markets around the world.
If you take as an underlying assumption that the goal of any business is to grow, you’re going to be investing in those opportunities and those regions that can provide the greatest profitable growth opportunities for you as an institution. With the markets around the world globally developing, people are investing globally, and so are we.
What is the marketplace like for IPOs this year and into 2013 as far as listings for NYSE Euronext?
Cutler: We’re doing more deals. We’ve got a greater pipeline than we did this time last year — there are currently more than 120 filed transactions in our pipeline, with approximately $23 billion to be raised.