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The Deal: BATS, Direct Edge Take Swing at Incumbents

BATS attempted a float last year of 6.29 million of its shares, anticipating an offer price of $16 to $18. However, it scrapped the IPO due to problems in its trading system. Ratterman was stripped of his dual role as BATS chairman and chief executive around the same time--though the board supported his ongoing service as CEO.

BATS posted EBITDA of $101 million in 2012 and an EBITDA margin of 65%, according to a company spokesman. Its owners include Credit Suisse (CS), Citigroup (C), JPMorgan Chase (JPM), Deutsche Bank (DB), Morgan Stanley (MS), Nomura and KCG Holdings.

Citadel LLC and International Securities Exchange LLC hold stakes in Direct Edge.

BATS and Direct Edge were established by trading firms and banks to run platforms with cheaper fees and what they claim is newer technology and better customer service compared to incumbents such as NYSE.

Last week private equity players Spectrum Equity Investors and TA Associates Management bought a combined 12% stake in BATS. Direct Edge was last year reported to be in talks to be acquired by Canadian exchange operator TMX Group Inc. before a group of Canadian banks bought TMX last September.

BATS also operates a U.S. equity options market and the largest stock exchange in Europe, BATS Chi-X Europe. Direct Edge is aiming to expand internationally by opening an equity market in Brazil. BATS was advised by Broadhaven Capital Partners while Direct Edge was advised by Bank of America Merrill Lynch and an Evercore Partners (EVR) team comprised of Jane Gladstone, Scott Patrick, Jin Lee, Andrew Steinberg, Shawn Ng and Meghan Mirchich.

Written by Jane Searle
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