Feb. 7 (Bloomberg) -- Gate Technologies LLC, owner of an electronic platform that plans to compete with venues where privately held companies trade, bought data provider InfoExchange Inc. to provide investment research to customers, Chief Executive Officer Vince Molinari said.
Gate, which aims to help centralize trading in illiquid securities, will compete with SecondMarket Inc. and SharesPost Inc. to facilitate transactions of private companies such as Facebook Inc. Adding InfoExchange lets Gate provide research reports and related analytics about products such as restricted shares or private equity to potential investors. The amount paid for InfoEx wasn’t disclosed. Both companies are in New York.
Investors flocked to the secondary market last year to seek growth after a two-year slump in initial public offerings and a 0.3 percent gain in the Standard & Poor’s 500 Index between the end of 2003 and 2009. Trading in privately held companies such as Facebook is likely to surge 51 percent to almost $7 billion this year, according to Nyppex LLC, a New York research and advisory services firm.
“We’re creating a new market infrastructure and related portfolio manager tools and analytics,” said Molinari, who co-founded Gate in January 2009 with Chief Technology Officer Lori Livingston. “The InfoEx acquisition takes us way out in front of the curve by bringing relevant information to participants.”
Gate, which closed the deal for InfoEx deal last month, now has two dozen employees, excluding computer software developers, Molinari said. InfoEx, which has more than 170 research firms providing information to users, displays information it predicts will be useful to customers based on an analysis of their trading and investment behavior, said Dean Stamos, who was chief executive officer of InfoEx.
Through InfoEx, Gate users will gain access to a curated list of more than 2,300 Internet news feeds, data on investment conferences and potential meetings they can arrange with private companies, he said. They can customize the information sent to them based on their holdings and interests.
While SecondMarket, SharesPost and Hedgebay Trading Corp. have helped increase trading for shares of private companies and restricted stock, they rely on brokerages and trading specialists to help investors negotiate prices, Molinari said. Gate will instead offer fully electronic transactions, he said.
Investors are buying shares of private companies as initial public offerings dwindle. Fewer than 100 companies had IPOs in the U.S. annually in 2008 and 2009, the first time that’s occurred since 1985, according to data compiled by Bloomberg. Last year 196 U.S. IPOs took place. From 2000 to 2007, an annual average of 292 IPOs occurred, compared with more than 570 from 1990 to 1999.
These types of platforms are going to become more important as regulators limit banks’ proprietary trading, which in the past increased volume and liquidity in the public market, said Larry Tabb, founder and chief executive officer of New York-based research firm Tabb Group LLC. While some companies may choose to remain private or raise money through the sale of restricted securities, regulators may benefit if trading and the associated data become centralized, he said.
“There will be more people trading illiquid products and more illiquid products because of the lack of traditional participants,” Tabb said. “If you wind up with a number of successful platforms, the SEC can go to them and get the information they need. By centralizing trading, it becomes easier to regulate.”
Gate will provide post-trade processing and settlement, Molinari said. Livingston is the chief executive officer of Portland, Oregon-based Transfer Online Inc., an electronic stock transfer business with technology Gate has licensed globally. The deal lets Gate become a company’s record keeper of securities holders, Molinari said.
The company plans to introduce Gate India to trade private equity and restricted securities later this quarter with BigShare Services Pvt. Ltd., a Mumbai-based share registrar and transfer agent. A franchise in Brazil is planned for the second quarter. Each region will use the same technology, with InfoEx tailored to the needs of customers there, Molinari said.
“We’re walking into a world where information will become actionable for illiquid securities,” Stamos said. “Investors will get the relevant information they need to make trading decisions.”
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