Richard Drew/Associated PressThe New York Stock Exchange is looking to get into the business of private placements.Since its origins under a buttonwood tree over 200 years ago, the New York Stock Exchange has billed itself as a top place for companies to list their publicly traded stocks.
But with a new investment, the Big Board’s parent company is looking to get into the business of private placements.
NYSE Euronext is expected to announce on Monday that it has made a minority investment in ACE, a three-year-old start-up that offers companies a centralized platform to privately sell stocks, bonds and other securities. Financial terms of the partnership weren’t available.
The move is another effort by the markets operator to branch out into new business areas as the volumes of traditional stock trading continue to decline. One area that has attracted NYSE Euronext’s attention is the market for private placements, which the market operator estimates hosts over $1 trillion worth of transactions each year.
“We’ve spent a lot of time looking at the various ways formation capital is occurring,” Scott Cutler, the exchange’s head of listings, said in a telephone interview.
Earlier this year, NYSE Euronext’s chief rival, the Nasdaq OMX Group, formed a joint venture with another private market operator, Sharespost.
Founded in 2010 by a small cadre of financial services veterans, ACE was meant to make the private sale of securities easier. Private placements historically have relied on broker-dealers calling on scores of potential investors individually, a laborious process. And firms looking to buy into such an offering similarly have to call around to find investment opportunities that fit their needs.
“We thought that from a process perspective this was inefficient, and from an investor standpoint completely ridiculous,” Peter Williams, ACE’s chief executive, said in a telephone interview.
His firm runs a portal through which broker-dealers can post and manage securities sales, while institutions, family offices and wealthy individuals can search for offerings by specifying an array of investor criteria. The investment banks can control how much confidential information is viewable at any given time.
“It provides disclosure and liability that we think is important,” Mr. Cutler said. “It’s the only platform that does it that way.”
Mr. Williams stressed that ACE’s offerings differ from a number of other private market operators. It does not facilitate the trading of existing shares in privately held companies, a business that Mr. Cutler said NYSE Euronext has little interest in. Every transaction must be managed by a broker-dealer.
And unlike crowdfunding platforms like Kickstarter, which allow primarily young companies to raise up to $1 million from donations, ACE aims at more established companies looking to sell at least $5 million through their offerings. (The average deal size is about $50 million.)
So far, the start-up has registered more than 25 small to medium-sized investment banks for its platform. Mr. Williams said that NYSE Euronext’s backing would help pay for a doubling of his company’s staff, as well as help it develop other services for issuers like investor relations tools.
And perhaps just as importantly, he said, the Big Board’s investment will persuade bigger Wall Street firms to join.
“We have a whole host of resources available to us now,” Mr. Williams said.