ICE sticking to acquisition game despite unsuccessful bid for NYSE

Some CEOs might shy away from acquisitions after striking out with two high-profile failures.

Not Jeff Sprecher.

Jeff Sprecher

Jeff Sprecher

As head of Atlanta-based IntercontinentalExchange (ICE), which operates electronic trading exchanges for investors around the world, Sprecher spends little time lamenting what could have been.

That goes for his recent unsuccessful bid (along with Nasdaq) for the New York Stock Exchange, as well as a failed attempt to buy the Chicago Board of Trade four years ago.

“We have a bizarre culture. We never celebrate our successes and we never mourn our losses,” Sprecher, 56, said during a recent interview. “I’m an even-keel person. The whole company has a similar personality.”

It’s a good thing it does. Sprecher has built ICE into a growth company that’s always itching to take calculated risks. Every two weeks, in fact, Sprecher said about a dozen execs meet about potential acquisition targets.

“We discuss deals that might be good for us, deals that competitors are looking at … and deals that have been announced but not completed,” Sprecher said. “We basically put together the game board.”

Since 2005, when ICE went public, it has grown from $156 million in annual revenue to $1.1 billion — boosted, in part, by 11 acquisitions, including the New York Board of Trade.

The company, relatively rich in cash and low on debt, pays no dividends to shareholders because it wants to use its cash for purchases.

“Why do you want to be a public company?” Sprecher asked rhetorically during the interview. “The only real advantage is access to investor capital. … Use it for M&A or growth in some way.”

Sprecher said he has been clear to investors and analysts about the company’s strategy. As a result, he said, “our shareholders are tolerant so far of our risks.”

The risks are not undertaken without thorough financial vetting. Before making a deal, Sprecher said, “you need to convince yourself you can buy a company and run it better, and have a high return on invested capital.” He shoots for a return in the 16 percent range, which exceeds ICE’s cost of capital of 10 percent.

That requires innovation following a purchase. For example, the New York Board of Trade was an “open-outcry exchange” (traders hollering on the floor) that operated four hours a day when ICE bought it in 2007 in a $1 billion deal, Sprecher said. ICE converted it to an electronic exchange that operates nearly around the clock and has doubled trading volume in two years. (ICE makes money on each trade.)

On the two most newsworthy deals, ICE lost out by trying to break up already-proposed marriages between NYSE and Deutsche Boerse, and the Chicago Board of Trade and Chicago Mercantile Exchange.

Still, Sprecher sees a silver lining.

“We’ve made it more difficult for our competitors, even though we lost, because the expense of the deal was raised by ICE’s intervention,” he said.

That leads to another critical point that plays into Sprecher’s non-emotional approach.

Even in the heat of a takeover battle, he said, “you must be disciplined in price. … You’re only as good as your last deal.”

- Henry Unger, The Biz Beat

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