Via Financial Times

The bewilderment that greeted news that the world’s second-largest exchange group had considered buying eBay is unlikely to faze its chief executive Jeffrey Sprecher.

He built Intercontinental Exchange into a $50bn powerhouse that provides the data and infrastructure that companies use to trade in financial markets and has spent his career looking one way as rivals have looked the other.

But investors fear that a move into the consumer market would be a leap too far.

Following news it had held discussions about combining with eBay, ICE shares fell by 8 per cent, their biggest one-day drop in more than a decade.

“We’re sceptical of how ICE could leverage its experience and technology into eBay . . . a purchase of such a different kind of company could be bold but also a sign of reaching for growth,” said Chris Kuiper, analyst at CFRA Research.

Mr Sprecher’s investment approach has driven ICE from an Atlanta-based start-up in 2000 into an increasingly influential US company. Last month, his wife Kelly Loeffler, an early ICE employee, was appointed a senator for Georgia. She sits on the senate agriculture committee that helps regulates ICE.

Mr Sprecher was a power plant manager before setting up a power exchange that was the forerunner of ICE. When its rivals were fighting for assets in big M&A deals, ICE opened the first clearing house in London in 100 years in 2008. As exchange megadeals became bogged down in competition questions, ICE was the first to move into fixed income data and trading instead.

That solidified its reputation among investors, not only for the coherence of strategy but for executing on its deals. Over the past decade, reinvested total returns for ICE have been 410 per cent; for the S&P 500 Composite it has been 268 per cent, according to Refinitiv Datastream.

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What the discussions with eBay do indicate is ICE’s new willingness to look for opportunities beyond the traditional exchange world of trading, data and clearing.

Mr Sprecher’s management team meets every two weeks to discuss potential deals. “The risk this time around is that management have been so visionary that investors think they are hallucinating,” said one analyst.

Still, ICE damped expectations it was prepared to jump fully into the consumer market.

It confirmed it had approached eBay to explore possibilities that could “create value for the shareholders of both companies”. However, it said the discussions had since been dropped and the two were not engaged in negotiations. Barely a day later, ICE said it would buy Bridge2Solutions, a company that runs customer loyalty programmes, for an undisclosed sum.

Chris Turner, an analyst at Berenberg in London, said it looked like the market had reacted to a completely different scenario from the one ICE had in mind.

The Bridge2Solutions deal would accelerate the push into consumer markets by Bakkt, an ICE subsidiary for trading digital assets such as bitcoin that was run by Ms Loeffler before she moved into politics.

Yet Bakkt, along with other recent acquisitions such as mortgage provider Mers and last year’s $335m purchase of real estate technology group Simplifile, are long-term projects that are unlikely to materially affect ICE’s earnings for many years.

Since it moved into data provision with the purchase of Interactive Data Corp for $5.2bn in 2016, ICE has traded rapid revenue growth for steadily rising earnings per share and operating margins, which were 52 per cent in 2018.

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Ed Ditmire, head of investor relations at Nasdaq, pointed out that many exchange businesses were maturing and it was harder for them to do M&A because of antitrust and political concerns.

“It’s really hard to find the perfect puzzle piece now,” he said. “We’re moving from a transactional relationship with customers to deeper, higher quality one.”

Even so, that change may not come easily to an acquisition machine such as ICE. Mr Sprecher told investors in December that he felt pressure to grow and deliver consistent earnings growth. But “when we do [a deal] and announce it, you all have to say, ah, that’s so logical.”