Easdaq, the pan-European stock exchange billed as the equivalent to Nasdaq in the US, is badly in need of members. The initial euphoria which greeted the launch of the exchange in December 1996 has rapidly turned into indifference. By its first birthday, the exchange had aimed to have 50 companies listed. As it turned out, it had only 23 at that time (CI No 3,301). Since then, its rate of growth has slowed, and one of its star stocks, British anti-virus software company Dr Solomon’s Group Plc, is now departing after its takeover by America’s Network Associates Inc. The extent of Easdaq’s lack of support was illustrated in May when PC distributor Computacenter chose to float on the London Stock Exchange instead of Easdaq.
By Graham Burton
The move was curious for two main reasons. Firstly, Computacenter, the largest PC distributor in the UK with revenues of ú1.1bn ($1.8bn), has strong ambitions to become a major force in France and Germany – a good reason for the company to choose the pan-European Easdaq. Secondly, Computacenter was backed by Apax Partners, the venture capital firm chaired by Ronald Cohen who, as vice chairman of Easdaq, is one of the exchange’s strongest backers. So why has Easdaq garnered so little support? The primary problem is a lack of liquidity. Easdaq has 33 companies, 16 are dual listed [13 on Nasdaq as well as Easdaq]. On average, the trading volumes are 94% on Nasdaq and only 6% on Easdaq. For dual IPOs, the figure is 98%, says one analyst who did not want to be named. Cohen disputes these figures, saying the split is closer to 70/30 but still, this provides scant incentive to list on the exchange. Most analysts believe that Easdaq is trapped in a vicious cycle. Without higher trading volumes and greater liquidity, it can’t attract new companies, but without new companies, volumes remain low. Cohen is adamant, however, that Easdaq will not rush to try to increase the number of companies listing, and therefore trading volumes, by reducing its entry criteria or quarterly financial reporting requirements. The exchange currently rejects one-third of all applicants. Instead, Easdaq’s backers are hoping that greater political and economic integration in Europe will help to make the neutral, Belgium-based exchange a more natural choice for ambitious young companies than their national stock markets.
Improved domestic exchanges
But this may be wishful thinking. In response to the launch of Easdaq, many European countries have sought to improve the listing conditions for technology companies on their own domestic exchanges. For example, four months after the launch of Easdaq, the Deutsche Bourse in Frankfurt launched the Neuer Markt, an exchange designed specifically to help nurture young technology companies. The Neuer Markt already has 41 listed companies – eight more than Easdaq – and its liquidity, and therefore its credibility, is greater. On average, Neuer Markt accounts for half of the volumes of the companies that are also listed on Nasdaq. It is also attracting more new issues: During June and July, 11 companies made their debut on the Neuer Markt compared to seven on Easdaq. Of those seven, only one was an IT stock. In France the story is similar. The Paris Bourse set up the Nouveau Marche in March 1996. French online service provider Infonie was the first to float and was 50 times over-subscribed. That enthusiasm has continued. The June flotation of software tools vendor Cyrano was 258 times over-subscribed, a Nouveau Marche record. Today it boasts 58 listed companies. Similar exchanges were set-up in Amsterdam and Brussels. Even the City of London has become more receptive to computer companies. The LSE created a technology sub-sector earlier in the year, which should become a full-fledged sector by the end of 1999. Many believe that this will stimulate interest in technology companies among London-based investment funds. On top of this, growing rapprochement between the major exchanges of Europe also threatens the viability of Easdaq. Euro.NM, an alliance between the fledgling markets of Amsterdam, Brussels, Frankfurt and Paris, was formed in March 1996, while the LSE and Deutsche Bourse recently united to form a single European market for leading stocks.
Competition from Nasdaq
And, to cap it all, Nasdaq is now aggressively targeting the European investment community with a range of prime-time TV advertisements proclaiming Nasdaq as the stock market for the next hundred years. As a result, Nasdaq is probably more widely known in Europe than Easdaq. Nasdaq suffered similar problems in its early years but did not have to compete for business against as many as 25 other exchanges. Even so, Easdaq still boasts powerful allies among European venture capitalists who are attempting to bring their influence to bear. Cohen may not have been able to persuade Computacenter to go with Easdaq but search engine specialist Autonomy, another Apax-backed company, has just announced that it plans to float on the exchange. But many more need to follow if Easdaq is to fulfill its promise.
A longer version of this article appeared in the August 1998 issue of Computer Business Review.
