Market Mover

by Robert Greifeld

  It turned out that neither the reporter nor I was geographically challenged. The Wall Street Journal had just broken a story reporting that the Qatar Investment Authority was now making a bid for OMX. In fact, they were already buying up shares and had urged the OMX Board not to finalize anything yet. Suddenly, it felt like Nasdaq and OMX were caught in the middle of a struggle between rival Middle Eastern powers.

  Exhausted and exasperated, I wondered if all of this was destined to come to naught. We’d been up for three days negotiating with the Dubai team, and at the very moment of victory, our thunder had been stolen by this new development from Qatar. I knew I couldn’t adequately respond to this new information in my current state. Don’t make consequential decisions on no sleep. I just wanted to get home to New York, recharge, and figure out next steps.

  At the end of that crazy, exhausting whirlwind of deals and counterdeals, knife-edge negotiations, bland hotel rooms, and bleary-eyed globetrotting, Adena and I headed to the Stockholm airport together. She had done an incredible amount of work in the previous few days and had been a reliable, smart negotiator, not to mention a trusted advisor. I can only imagine how we must have looked. As we said our good-byes, the emotions of the moment caught up with us both. She started to tear up, and as I went to give her a consoling hug, I realized I was tearing up as well. In the end, even though dealmaking isn’t personal, we’re all human.

  I was often reminded, in times like this, of the importance of what I like to call executive fitness. Business is a marathon, not a sprint, and to be a leader in the marathon takes an unusual degree of fitness—mental, emotional, and physical. Late nights, long days, international travel, intensive negotiations, stressful situations—all of these are part of the job and inevitably take their toll. Wherever possible, minimizing distraction and stress in the rest of one’s life helps. A stable family life makes a big difference, as does maintaining good health, staying active, spending quality time with loved ones, and getting enough rest and relaxation. Being a leader takes more than talent; it takes significant energy and endurance. My executive team had all of these attributes, and I was proud to run the long miles beside them.

  One of the great joys in life and business is working hard with a close-knit team to accomplish shared goals. There is nothing quite like that sense of commitment and camaraderie that happens when people employ all their talents and capabilities to achieve something together. This is especially true in moments of extreme difficulty, challenge, hard work, or mutual sacrifice. Negotiating the OMX deal was certainly one such memorable moment, when deep bonds were formed and lasting relationships sealed. I’m proud of what we accomplished, but I’m even more appreciative of the people I shared the journey with. I like to think it was those experiences of courage under fire in the trenches of global dealmaking that helped make Adena the tremendous leader and formidable CEO that she would become for Nasdaq more than a decade later.

  The Finish Line

  In this case, I decided it still made sense to complete what we had started. I went straight to Investor AB. As a public, shareholder-owned company, OMX had to respect the bid from Qatar. But I was also confident that they preferred the Nasdaq-Dubai acquisition offer. It took some tough negotiating, and a sweetened bid, but I eventually struck a deal with Börje Ekholm (representing Investor AB) that presented a formidable challenge to the Qatar group. We negotiated a structured agreement in which Investor AB agreed to vote for the Nasdaq bid, assuming the price difference between the two offers was within a certain range. That locked up their shares (unless Qatar made a super-premium bid), ensuring their support of our offer. As a result, the Qatar group eventually dropped their bid for OMX and sold their stake.

  We passed the national security tests, and Dubai’s stake in Nasdaq was approved. Nasdaq would have the benefit of a global partner. Our new name would be Nasdaq-OMX. Our head count more than doubled overnight, and our global presence increased exponentially, as OMX had customer relationships with more than sixty exchanges around the world. Nasdaq now had a presence on six continents. Our wish for a global footprint had been fulfilled, in spades. I described the combined company as the largest global network of exchanges and exchange customers linked by technology.

  On the downside, we had paid a handsome price for OMX and lost some of our value in the bidding war. We paid for it in both cash and stock. Buying OMX is one of those decisions that looked positive at the time, but over the course of the next few years, as global markets swooned, I was forced to cast a more critical eye on the merits of the merger. In business, however, the long term trumps all, and over time, the Nasdaq-OMX merger would prove fundamental to our success.

  Nasdaq was becoming a significant software and services business serving international exchanges—a true growth market around the world. We also benefited tremendously from the infusion of capable talent from OMX into Nasdaq’s global workforce. None of it would have been possible without OMX. Now all we had to do was make the marriage work.

  On a more personal note, the OMX merger was an initiation for me. It was my first deep foray into international dealmaking, and what a trial by fire it was. At the end of the entire saga, which went on for well over a year, I felt like I was a different person than when I started. Somewhere along the way, amid the international intrigue, European politics, Middle East power struggles, hedge fund brinksmanship, and hostile takeover bids, I had left the upstart kid from Queens far behind. And at no moment was this clearer to me than the day I found myself driving down an avenue lined with peacocks on my way to meet with His Highness Sheikh Mohammed at his palace, accompanied by our new Dubai partners. Nasdaq was becoming a global player, and in some respects, I guess I was, too.

  LEADERSHIP LESSONS

  • Dealmaking Is Never Personal. It’s easy to get caught up in the high drama of negotiation and let it cloud your good judgment.

  • You Don’t Get Paid for Passivity. You won’t succeed at every deal you aim for, but in business you have to be audacious at least some of the time.

  • It’s Never Black-and-White. The best dealmakers try to see all sides of a deal and understand what constitutes a win for the counterparties. They embrace the complexity and the inevitable compromises and find their way through to a workable outcome.

  Chapter Eight

  Grappling with Growth

  Nasdaq to Acquire Phil-Ex for $652 Million

  Wall Street Journal, November 7, 2007

  When my boys were young, they liked to bowl. Julia would take them to the local lanes, rolling balls and knocking down pins. I’ve never been much of a bowling enthusiast, but there is one simple lesson I did learn: Aim for the center pin or, even better, just to the right or left of center. Years later, I would find myself repeating the same instructions to my executive team—only this time, the bowling alley had become the much higher-stakes game of mergers and acquisitions.

  When evaluating a potential acquisition, I told my team, let’s make sure that we don’t jump too far from our existing strengths—which included transactions processing, running efficient exchanges, and trading technology. I was fine about expanding through acquisition. But I didn’t want Nasdaq to become a disparate collection of barely related companies. I wanted us to grow, but not indiscriminately. I valued integration and alignment, two things that become harder at scale. One bowling pin to the right or left of that center was fine. Over time, our sweet spot would expand. But we should be very careful about trying to knock over pins outside that frame. We could very quickly end up in the gutter.

  This was not always a popular approach. In the financial markets at the time, the equities business—our central bowling pin—was not the sexiest. Derivatives were all the rage, as those were higher-margin businesses. For those not familiar with derivatives markets, I’m referring to exchanges that trade contracts whose value is based on a “derivative” of an underlying asset. Trading futures in soybeans is one example. Options are also types of derivatives based o
n the value of the underlying stock. CME (Chicago Mercantile Exchange) and ICE (Intercontinental Exchange) were (and are) the most prominent derivatives exchanges in the country. At the time, their success put pressure on us to expand our business to compete in those markets. I had nothing against derivatives, but I didn’t want to chase margins in businesses that were too far from our core strengths. I was very disciplined with my team about our strategy.

  In Good to Great, Jim Collins writes wisely about the use of acquisitions in building a great company. His key piece of advice is to be wary of using an acquisition as a distraction or a crutch, or a way to “diversify away [from] troubles.”1 Companies truly making the good-to-great transition, he observes, are able to use acquisitions to supercharge an already established, successful, and disciplined strategy. At Nasdaq, this was the approach we took. We knew our core business and our foundational strengths. Acquisitions became a method of building momentum in those areas, not diving into completely unknown businesses outside of our sphere of expertise.

  A perfect example of that strategy was our purchase of the Philadelphia Stock Exchange (known as Phil-Ex) in 2007. It was actually the oldest exchange in the United States, founded in 1790, and the third-largest equity options exchange in the country. It was in our sweet spot, one bowling pin away from center. When Phil-Ex shareholders decided it was time to go public or sell the exchange, a bidding war ensued between Nasdaq, NYSE, and a couple of other exchange consortiums. We came out ahead. We paid well over $600 million for the exchange and outbid our competitors, but I was confident in the value we were getting.

  Why? We did our homework. First, we had already experimented with equity options internally, allowing us to learn the business from the inside out. Second, we used sophisticated analytics—“big data,” in today’s parlance—to give us insight into the Phil-Ex market. When it comes to bidding wars, knowledge is power. Phil-Ex revealed itself in our models to be a stronger and deeper market than our competitors perhaps realized, hence our higher bid.

  During my tenure at Nasdaq, we did more than forty acquisitions. Some were for technology (like the transformational purchase of Instinet), some were to expand globally (like the merger with OMX), some were to move into related markets (like the purchase of Phil-Ex), and some were for market share (like BRUT). I insisted that the acquisitions we did must be accretive to our Earnings Per Share (EPS) by the end of the first year. They helped Nasdaq grow into a dominant national exchange and a significant global one. We prided ourselves on doing them well, and I learned a lot in the process. In truth, however, this was the continuation of an education that had begun long before I accepted the CEO job at the exchange. My former employer, SunGard, built itself largely through acquisitions, which opened my eyes to the possibilities. By the time I left, I had learned a great deal. I brought that knowledge with me to Nasdaq, where I was able to hone it and put it to the test on a much bigger scale. Over time, my team and I became real experts on the subject, especially when targeting other exchanges. In the early days, we were particularly adept at transforming fat, manual, labor-heavy exchanges into fast, lean, efficient, scalable, technology-centric trading enterprises. Later on, we became primarily focused on technology-based acquisitions.

  I called this strategy “leveraging the mothership.” We had developed the top technology platform in the cash equities universe. Now we could leverage it by acquiring other exchanges and integrating them into the Nasdaq transactions business, using our considerable technological know-how and deep understanding of the business of exchanges. Indeed, in one busy period of about a year from 2007 to 2008, we acquired three exchanges in addition to OMX—the Boston Stock Exchange, Phil-Ex, and Nord Pool (a Nordic energy exchange).

  Acquisitions were a critical part of Nasdaq’s growth strategy. Part of our effectiveness was our technical proficiency. Part of it was our discipline. But I also believe some of our success could be credited to our capacity to understand the opportunities and mitigate the risks associated with any acquisition. Acquisitions can add tremendous value to a company and supercharge growth. But they come with inevitable risks and potential minefields.

  Evaluating Acquisitions: The Four Elements of Risk

  I believe that there are at least four elements that must be taken into account when considering the risk-reward profile of any given acquisition and the potential challenges of effectively integrating the newly acquired company.

  1.Core Business Risk. The further a proposed acquisition is from one’s own core business, the greater the risk. That shouldn’t be surprising, but it’s something to take very seriously. As Nasdaq, equities exchanges were obviously in our sweet spot. That was our business and we knew it well. Moving away from that business—into, say, exotic financial instruments or other types of nonequity derivatives—would add risk to the acquisition. We didn’t have the internal intelligence to evaluate those businesses with the same degree of accuracy. Again, it can work, but the further you venture away from your core business in the acquisition target, the more risk you are taking on board.

  2.Geographic Risk. The further a proposed acquisition is from one’s geographic center, the greater the risk. Today’s business world is global, and communications technology has brought us closer together, but geography remains a factor to carefully consider. Buying a business on a different continent with customers thousands of miles away is inevitably more complicated and risky than buying a business just across town. That’s not to say that mergers between geographically diverse organizations cannot work well. Our merger with the Nordic-based OMX proved to be a resounding success. But I was fully aware of the increased risk and the challenges we would face because of distance.

  3.Cultural Risk. The greater the cultural difference with any proposed acquisition target, the greater the risk. There are at least two aspects of culture that must be considered: the internal business culture of any given company and the local culture surrounding any given company. Often in acquisitions, a company ends up taking on board a very different business culture. That creates potential problems. Trying too hard to combine and balance two distinct business cultures is a recipe for trouble. Obviously, transforming business culture is not as easy as flipping a switch, but as a general rule I think companies need to have one overarching business culture. More than likely, the acquiring company will need to impose that—to establish clear principles and expectations. That should be done early and often after an acquisition. There should be no confusion about what business culture is going to predominate. But there is one caveat to that advice when it comes to local culture—the national or regional traditions in which the company is embedded. Don’t overreach and start stamping out the distinctive flavors of local culture. Those are natural and important, and there’s no reason not to make space for them. I was happy for the OMX team to find ways to express their local culture, which was largely independent of the business culture we were working to establish.

  4.Size and Head-Count Risk. The greater the size and head count of a proposed acquisition (relative to one’s own company), the greater the risk. Size equals complexity. Much of that is simply head count—with great numbers of people come greater numbers of issues to be navigated. But in most cases, size also means activities spread across more businesses, more regions, more markets, and so on. When an acquired company is bigger than your own, you also need to consider the cost and complication of the managerial infrastructure needed to deal with the larger head count. This also means that cultural mismatches will inevitably be harder to accommodate. Indeed, when you more than double your head count overnight, don’t underestimate the demands of integrating the company. In a very real sense, the size and head-count risk compounds other risks. It makes everything more difficult and uncertain. That’s not to say it’s not worthwhile, but as the risk profile of acquiring a company ratchets up in any given scenario, it’s important to make sure the corresponding potential of the reward does as well.

  All of these were
risks I carefully weighed before each of Nasdaq’s major acquisitions. They helped me to assess the wisdom of buying any particular company, and they also helped me to look ahead, down the road, and prepare for the challenges that I would face once the deal was done. When a long and difficult negotiation like the OMX deal finally comes to an end, it’s tempting to breathe a sigh of relief and pat oneself on the back. But the real work has hardly begun. Too many companies do a merger but then don’t really do a successful integration. Without that extra element, you don’t get the full benefit of the merger. I always found that in order to get employees to buy into the vision of a new, combined company—and benefit from a higher level of engagement—you have to start to “feel” like one company. Otherwise, you’ll never get that higher level of “buy-in” from the various teams. That requires real work at integration. It demands clear leadership and smart management skills. The OMX integration was a real test of everything I’d learned in the various chapters of my business career.

  In Search of Vikings

  “Magnus, we need to find the Vikings on your team.”

  Magnus Böcker, former CEO of OMX, laughed in his easy way. “There’s one right there.”

  He was pointing at Hans-Ole Jochumsen, who was just teeing up on the sixth hole. The light was spectacular on the golf course, especially considering that it was midnight. We were meeting for a few days in Iceland, the top executives from both Nasdaq and OMX, and working on the postmerger plans for the two companies. The Nasdaq-OMX company actually owned the Iceland Stock Exchange, and it seemed a good in-between place to convene an executive retreat. With its location near the Arctic Circle, Iceland also offered a unique sporting opportunity during the summer months. It was easy to work long days, and with ample light lingering late into the evening in this “land of the midnight sun,” nighttime golf is a popular activity.