Nasdaq to Acquire Financial-Software Firm Adenza for $10.5 Billion
Deal represents the biggest acquisition in company’s history
By
Alexander Osipovich
Updated June 12, 2023 4:18 pm ET
Nasdaq CEO Adena Friedman has been working to transform Nasdaq into a more tech-centric company. PHOTO: BRENDAN MCDERMID/REUTERS
Nasdaq NDAQ -11.81%decrease; red down pointing triangle has agreed to acquire Adenza, a maker of software used by banks and brokerages, in a $10.5 billion cash-and-stock deal that represents the most ambitious move yet in Chief Executive Adena Friedman’s efforts to reshape her company.
If completed, the Adenza deal would represent the biggest acquisition in Nasdaq’s history.
Since assuming the CEO job in 2017, Friedman has sought to transform Nasdaq from an operator of marketplaces—whose income fluctuates with trading volumes—to a more tech-centric company with steadier revenue.
Investors have generally rewarded her efforts to diversify Nasdaq’s revenue mix away from the volatile, highly competitive business of running stock and options exchanges. But the market balked at the price tag of the Adenza deal, as shares of Nasdaq tumbled 12% on Monday, making it the worst-performing stock in the S&P 500 for the day.
The seller in the transaction is private-equity firm Thoma Bravo, which is poised to get 14.9% of Nasdaq’s shares outstanding as part of the deal, making it one of Nasdaq’s largest shareholders.
Nasdaq, Adenza and Thoma Bravo unveiled the deal in a press release Monday, after the transaction was earlier reported by The Wall Street Journal.
Adenza provides software to help manage trading, risk management and post-trade processing in markets such as currencies, fixed income and derivatives. Its technology also streamlines the process of reporting data to regulators, a task that has become increasingly time consuming for banks due to the Dodd-Frank Act and other rules imposed after the 2008 financial crisis.
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Based in London and New York, Adenza says its clients include the majority of banks that regulators have deemed systemically important.
Friedman
has moved the company beyond its historical roots in running exchanges, building on a strategic shift that began under her predecessor, Robert Greifeld.
Among its businesses, New York-based Nasdaq sells market data to asset managers and provides brokers with software to detect market manipulation.
In 2020 Nasdaq
agreed to a $2.75 billion deal to buy Verafin, a software company that helps banks detect money laundering and fraud. The Adenza deal would allow Nasdaq to sell Verafin’s anticrime services to a broader array of banks, Friedman said in an interview.
“This is an incredibly exciting deal for us as we continue to transform the company into a leading technology company that serves the industry,” she said.
Trading accounted for about 28% of Nasdaq’s net revenue last year. With the Adenza acquisition, that percentage is projected to dwindle to about 23%, according to Nasdaq.
Adenza is projected to book about $590 million in revenue this year, according to Monday’s press release. Last year, Nasdaq had $3.6 billion in net revenue.
New York-based Nasdaq is paying about 31 times Adenza’s adjusted earnings before interest, taxes, depreciation and amortization, based on its projected financials for 2023. By comparison, tech companies in the S&P 500 have an average market capitalization of 17 times adjusted Ebitda.
Underscoring the risks for Nasdaq, S&P Global Ratings downgraded the company’s long-term issuer credit ratings to triple-B from triple-B-plus, citing the $5.9 billion in debt that Nasdaq plans to take on to finance the deal.
Nasdaq said it was committed to reducing its debt burden during the three years after the deal. It justified the price tag by pointing to Adenza’s hefty profit margins and its potential to make Nasdaq an indispensable provider of technology to the world’s biggest banks.
Nasdaq is paying for the Adenza transaction with $5.75 billion in cash and 85.6 million shares of its common stock.
To offset the dilutive impact of new shares being issued to Thoma Bravo, Nasdaq said it plans to repurchase shares over time. Nasdaq said it expects the Adenza acquisition to begin having a positive impact on its per-share earnings after two years.
Monday’s selloff in Nasdaq shares was “a knee-jerk reaction” to the acquisition’s cost and Nasdaq’s plan to use its own stock to fund part of it, said
Oppenheimer analyst Owen Lau.
“But you have to think about how this deal could transform Nasdaq into a totally different company,” he added. “They’re trying to look like an information-services company, or a software company, rather than an exchange.”
The deal is expected to close in six to nine months, pending regulatory approval and other customary closing conditions, the companies said.
Thoma Bravo hasn’t disclosed how much it paid for the businesses that make up Adenza. The company is the result of the 2021 merger of two firms, Calypso Technologies and AxiomSL. The private-equity firm acquired AxiomSL in 2020. The next year, Thoma Bravo merged Calypso into AxiomSL and renamed the combined firm Adenza.
Nasdaq’s competitors have also done megadeals to diversify their business mix, with varying degrees of success.
London Stock Exchange Group’s share price is little changed from where it stood when the company closed its $15 billion transaction to
buy data provider Refinitiv Holdings in January 2021.
Meanwhile,
Intercontinental Exchange—owner of Nasdaq’s crosstown rival the New York Stock Exchange—has pursued several big-ticket deals in
mortgage data and technology.
