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Tech Listings Race Tightens Between Exchange Operators

November 2012

NEW YORK--Technology listings have long been the domain of the Nasdaq Stock  Market, but a series of recent wins for the New York Stock Exchange has tightened the race for hosting tech-sector ipos.

Nasdaq OMX Group Inc. (NDAQ) maintains a narrow lead in 2012 for attracting tech IPOs. But, after Big Board operator NYSE Euronext (NYX) grabbed flotations from companies including Workday Inc. (WDAY), Trulia Inc. (TRLA) and Palo Alto Networks Inc. (PANW), the race for IPO tech listings this year is as close as ever, according to deal tracker Dealogic. As it stands, Nasdaq has had 17 tech IPOs this year, versus 15 for NYSE. Each exchange keeps its own data that differ from Dealogic's tally.

As recently as 2007, the Nasdaq--home of tech titans like Apple Inc. (AAPL), Google Inc. (GOOG) and Microsoft Corp. (MSFT)--picked up three out of new four listings from the technology sector, which tends to incubate the most IPOs. Tech deals have come to market at clip that is double the next-most-frequent sector, healthcare, since 1995, according to Dealogic. At stake for exchanges are prestige, as well as the revenue derived from trading  and data dissemination tied to their listed companies.

"I think that, a few years ago, NYSE realized that they were in danger of being irrelevant. The perception was that everyone that was hot and growing in tech was going to Nasdaq. If NYSE didn't do something about it, they would have all the companies that were old and slow," said Ken Marlin, managing partner and founder of Marlin & Associates, an advisory firm and investment bank that works with technology firms in New York.

NYSE's competitiveness for luring tech companies swelled after the Big Board operator relaxed its standards in late 2008 to allow smaller, newer companies to list. Formerly, firms needed a market value of $750 million and a track record of profitability to have a seat. New rules dropped that threshold to $150 million in market value and no operating history prior to listing.

The rules coincided with ramped-up efforts on the part of the NYSE to expand its West Coast operations and bring in personnel with a background in tech, said Scott Cutler, executive vice president and head of global listings at NYSE Euronext, himself a former Silicon Valley banker.

"It's a different story than it was 10 years ago, where the other guy was the default in tech," Mr. Cutler said. Now, the NYSE is "not just showing up in pinstripe suits to win a listing in Silicon Valley."

Competition for tech IPO listings picked up in earnest between the two exchanges last year, as each vied for a flurry of hot Internet companies. NYSE picked up LinkedIn Corp. (LNKD) last year and Yelp Inc. (YELP) earlier this year. Nasdaq countered with Groupon Inc. (GRPN), Zynga Inc. (ZNGA) and, ultimately, the big cheese: Facebook  Inc.'s (FB) $16 billion offering.

Winning the largest Internet IPO ever was a coup for the Nasdaq, but the technical glitches that marred its May IPO cast a shadow over the broader IPO market, industry watchers said. No new listings hit either exchange for nearly six weeks after Facebook's listing.

"Entrepreneurs are nervous about going public anyway, so when a large company like Facebook has those kinds of glitches, certainly it dampens enthusiasm for IPOs, and I think it impacted the markets for a couple of weeks after," said Reena Aggarwal, a professor of finance who researches IPOs at Georgetown University.

Yet there is no clear signal that, six months later, the Facebook IPO has kept tech companies away from the Nasdaq. The exchange has bagged one more tech IPO listing than NYSE since Facebook's May IPO, although, NYSE, for its part, has picked up four of the last six.

"People don't seem to lay blame at the feet of Nasdaq, given the broader issues involving Facebook itself. To me, I think that people are viewing it more as an outlier," said Dan Mahoney, a partner at law firm Snell & Wilmer LLP focusing on venture capital and private equity.

Robert Birge, chief marketing officer at Kayak Software Corp. (KYAK), said Facebook's unusually large size, as well as its record first-day trading volume, didn't seem keenly relevant to his company, which listed on Nasdaq two months later.

"Most important to us was the Nasdaq brand--that's the exchange that's been most associated with the companies we aspire to be like," Mr. Birge said.

Competition for future tech listings looks likely to remain tooth and nail. In the pipeline of companies that have updated their IPO regulatory filings in the past 180 days, three tech companies have picked NYSE, while four have gone Nasdaq's way.

"I think that, at any snapshot in time during the year, you'll find one or the other exchanges blipping up in 'win' rates , and win rates in certain sectors," said Bob McCooey, senior vice president of new listings and capital markets at Nasdaq OMX. But he says the battle for tech listings is engaged.

"We are in there fighting for every listing," Mr. McCooey said.

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