In Quick Turnaround, Instinet May Go Public

Less than a year after buying electronic stockbroker Instinet for $208 million, Silver Lake Partners and Instinet management plan to sell the firm or take it public.

Silver Lake, a private equity firm in Menlo Park, Calif., bought a majority interest in Instinet from the Nasdaq Stock Market last December. Instinet Chief Executive Edward Nicoll and some other members of management own 25% to 33% of the brokerage.

The plan is the latest example of private equity firms looking to cash out well in advance of the three-year to five-year holding periods they typically tell investors to expect.

“We always thought that in two or three years we would demonstrate the success of our model and look to see if we would come back into the public markets or pursue another kind of strategic combination,” Nicoll said. “It’s just accelerated much quicker than we thought it would.”

The move was prompted by unsolicited approaches from at least three possible buyers, Nicoll said. Merger advisory firm Evercore Partners has begun circulating an information memorandum to possible bidders, and Instinet has simultaneously been meeting with investment banks to help it test the initial public offering market, Nicoll said. He wouldn’t comment on pricing or possible bidders.

Firms looking for a quick sale often simultaneously market themselves to buyers while preparing IPOs. Plans for the possible sale of Instinet had been reported Monday on the website of Financial News.

Instinet executes trades for institutional investors such as mutual funds, hedge funds and pension funds. The company has set volume records since it was taken private last year, with unexpectedly fast growth internationally, Nicoll said.

In the second quarter of this year, Instinet’s average daily trade volume was 3.7% of all shares traded in U.S. equity markets and about 2% of shares traded on the Tokyo Stock Exchange, the company said.

“There could be reasonable interest in [buying] a property like that,” said Richard Repetto, an analyst at Sandler O’Neill & Partners. Potential suitors could include “anybody that is looking to upgrade their trading technology and their product offering.”