Vestar eyes equity exchanges

The New York-based private equity firm has joined forces with former Pacific Exchange CEO Philip DeFeo to put $500m to work in a securities exchange-focused platform.

Vestar Capital Partners is launching a $500 million joint venture with Philip DeFeo, the former chairman and CEO of the Pacific Exchange. The new venture will be run by Lithos Capital Partners, a new private equity firm launched by DeFeo and Vestar, and will invest in securities exchanges and the companies that serve them.

DeFeo and his partner and co-founder David Chow will identify investments for Lithos, execute deals and then provide operational, regulatory and governance expertise to portfolio companies.

DeFeo led the demutualisation of the Pacific Exchange in 2004, converting its equity business into a for-profit corporation and later selling it to Archipeligo Holdings.

The new venture highlights the increased interest from private equity firms in the activities of equities exchanges. Around the world, exchanges have been consolidating and expanding into new markets, and private equity has played a major role in these activities.

General Atlantic Partners has been particularly active. The Greenwich, Connecticut-based firm recently took a 10 percent stake in the New York Mercantile Exchange (Nymex), after which GA president Bill Ford won a seat on the Nymex board and is reportedly preparing the exchange for an IPO. GA also owns a 22 percent stake in Archipeligo Holdings, which merged with the New York Stock Exchange in 2005.

Right now multiple exchanges are considering bids for the London Stock Exchange, and Euronext is reportedly considering a linking with Deutsche Borse. Consolidation is also expected to increase in the US as cash equity exchanges keep their eye on derivatives trading.

Beyond equities exchanges, the fund will also look at companies providing services that will help exchanges manage the technological and structural changes affecting the industry.