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EUROPEAN EXCHANGES JUST CAN’T MATCH NASDAQ FOR TECHNOLOGY

From Computer Business Review, a sister publication.

Tucked away in a corner of the Financial Times ‘Companies and Markets’ section is a small panel marked ‘Easdaq’, listing shares for the newly established, electronically traded, pan-European stock market that was set up in 1996. The goal of its founders is to provide a European alternative to the US Nasdaq exchange, home to the world’s most dynamic technology companies – Microsoft, Intel, Oracle and thousands of others, and giving them a combined net worth in the trillions of dollars. But by the beginning of September, nearly a year after it was set up, just 15 small, mostly high-tech companies were listed on Easdaq, and of these, a handful – such as Dr Solomon’s, the supplier of anti-virus software, and Lernout & Hauspie, a speech technology specialist – are also listed on Nasdaq. Only a few companies had bravely elected to go onto Easdaq alone. Among these are Activcard, a French supplier of smartcards, and Esprit Telecom, a British supplier of digital telecoms.

By Andrew Lawrence

Taken together, Easdaq listed companies have a combined market capitalization of little more than $2.5bn. Easdaq (in which Nasdaq has a 20% stake) defends its slow start, saying that new markets take a long time to become established – Nasdaq, for example, is 20 years old. And, Erik Hallmann, head of Easdaq admissions, told a recent conference that Easdaq is trying to control the quality of stocks through rigorous vetting. One third of applicants are turned down. But no-one is denying that Easdaq, initially seen by many as the market that would finally bring liquidity to Europe’s technology stocks, has so far been a disappointment. This is especially so given the favorable business climate: Europe is producing more and better managed computer start-ups than ever before, institutional investors are becoming more inclined to invest in technology stocks, and trading barriers between European countries are being dismantled. So why is Easdaq struggling?

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Scramble for prominence

One of the causes of its problems arises from the very reason it was set up: the conditions are so favorable that there is a scramble for prominence between half a dozen competing stock markets. As a result, none of them has built momentum in high- tech. For Easdaq to succeed, it has to be the focal point. But people still think of Easdaq as a fourth or fifth alternative. It can’t be successful as one of seven exchanges, says Victor Basta, joint UK managing director at M&A specialists Broadview Associates. These exchanges include the London Stock Exchange (LSE), the German, French and Dutch Bourses, and the small company markets, such as the London Alternative Investment Market (AIM), the German Neue Markt and the French Nouveau March. So far, none of these can claim to be the natural home for technology stocks in Europe. This is one reason why US investment companies are having such an easy time luring European companies to Nasdaq. This is not to say that institutions have given up on Easdaq. Our view is that Easdaq is still developing, and it is showing some early successes, says Mike Halloran, head of investment house Alex Brown in London.

Easdaq may flourish

In fact, most of the merchant banks are playing wait-and-see: Easdaq may flourish, but it hasn’t yet, says Dhiren Shah, co- head of Morgan Stanley’s technology group. So far, Morgan Stanley has taken several European firms public with dual listings on local exchanges and Nasdaq – none on Easdaq, though. If not Easdaq, then what of the big and fluid LSE? London’s main virtue is that it is largely exempt from concerns about liquidity or stability. But it suffers from several problems: it is perceived to be expensive to list on, to be British rather than European, and to have little culture or expertise in handling technology stocks. This leads to lower valuations. Other European exchanges, such as Frankfurt (which hosts SAP), Amsterdam (home to Baan), and Paris (home to Dassault), have the same problems, but are perceived to lack liquidity and profile. Certainly, London would be well positioned if it took a more proactive approach to marketing itself as an international and technology-friendly exchange. So far, few of its members come from continental Europe, and only a handful of the computer stocks – such as JBA, Micro Focus, Misys and LBMS – are known in the US. But there is growing interest in London. The attraction of the main market in London is underrated in the technology world. It’s very stable, and for IT services companies the valuations are much the same as Nasdaq, says Patrick Sheehan of the international venture capital group, 3i. Later this year, London will attempt to improve its image in the technology world by listing a ‘technology sector’ for the first time. Software companies, today, sit alongside other service providers, including waste disposal firms.

Last resort

But member companies are arguing about the new ‘sector’, over whether computer stocks should be listed separately from, say, biotechnology. The LSE may also start to benefit from the apparent success of AIM. It was started a little before Easdaq, and now has 300 small companies listed. AIM, however, is still considered by most venture capitalists as an exchange of last resort, and has little support among international investment institutions. There will be a vibrant market for technology stocks in Europe. But I’m not sure when, says Adrian Merryman, the London head of US investment bank Oppenheimer. Nor is he sure which stock exchange will emerge as the leader. For the time being, Nasdaq reigns supreme.
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CBR Staff Writer

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