Regulation is slowing deal environment, Nasdaq CEO says
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Nasdaq CEO speaks with Axios' Hope King at Axios BFD. Photo courtesy: Sam Popp on behalf of Axios
Heightened regulation is a major stumbling block for innovation and dealmaking, Nasdaq CEO Adena Friedman told Axios on Tuesday.
Why it matters: The FTC and DOJ have ramped up enforcement actions in response to the growing number of large transactions, leading to nearly a dozen mergers abandoned or restructured last year alone.
What they're saying: "If you're not careful, the antitrust process can have a huge chilling effect on the entire innovation ecosystem," Friedman tells Hope King at Axios' BFD event in New York.
- "The atypical approach that we're seeing within the FTC could have a ripple-down effect" on investors being willing to underwrite risk, she says, noting this dynamic tamps valuations and makes it more difficult for young companies to fundraise.
Between the lines: Friedman specifically called out the Federal Trade Commission's "non-standard" review processes, saying she was grateful that the Department of Justice oversaw Nasdaq's $10.5 billion acquisition of financial software provider Adenza last year.
- "It was a little bit more of a standard process. We closed the deal in five months."
The big picture: Dealmaking and public listings are facing myriad regulatory and economic pressures. FTC chair Lina Khan has specifically cited inflation and consumer protection as central to the agency's agenda.
Yes, but: "Over the last 15 to 20 years, inflation has stayed extremely low, which has allowed the country to maintain a very low cost of capital," Friedman says.
- "[Khan] may be responding to a very short-term situation which has nothing to do with acquisitions, and it has everything to do with other factors in the economy right now."
- The difference between the interest rate and the inflation rate is quite high, so we have to start to bring that down," Friedman says.
Zoom in: As the effects of lowered interest rates trickle down, Friedman sees IPO bright spots in health care (see Waystar and Tempus), noting the sector is a "big part of the portfolio that we have at Nasdaq."
- Large companies are getting even bigger, as "the index itself is weighted toward larger companies," — meaning public investors are reaping benefits, while smaller companies keep waiting for a better capital cost environment.
What's next: "As we get a more normalized and balanced cost of capital, I think you're going to see that the public markets become more attractive," Friedman says.
- While Friedman says both presidential candidates have Big Tech in their crosshairs, the election's outcome is otherwise not weighing heavily on the market.
The bottom line: Nasdaq is responsible for helping companies make a smooth IPO transition — but the government also has a duty to make it less onerous to be a public company, Friedman says.
Axios' Emily Hamilton contributed reporting.
