Nasdaq (NDAQ.O) on Monday agreed to buy Thoma Bravo-owned software firm Adenza for $10.5 billion in the exchange operator’s biggest acquisition to date, speeding up its push to become a more tech-focused company.
Nasdaq, like its peers, has been on an acquisition spree to diversify its portfolio of technology and intellectual property after regulations in 2005 opened the equities trading market up to competition from brokers.
Since then, Nasdaq has bought Nordic markets owner OMX in 2007 for $3.7 billion, spent $1.1 billion on International Securities Exchange in 2016, and snapped up anti-financial crime software firm Verafin in 2020 for $2.75 billion.
Adenza’s software is primarily used by banks and brokerages, and analysts said Nasdaq’s deal to buy the company would help it diversify further beyond its roots as an operator of stock exchanges.
As part of the deal, Thoma Bravo will get a 14.9% stake in Nasdaq, making the private equity firm one of the biggest shareholders in the exchange operator. Holden Spaht, a managing partner at Thoma Bravo, is expected to be appointed to Nasdaq’s board.
“The whole here as part of Nasdaq is worth more than the sum of its parts – there are revenue synergies with Nasdaq, there are expense synergies and Nasdaq is a great global brand that I think will accelerate sales in Adenza,” said Spaht in an interview.
Shares of Nasdaq fell nearly 10% at $52.39 Monday morning as investors viewed the deal as an expensive bet. Nasdaq valued Adenza at about 31 times the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) this year, and is raising about $5.9 billion of debt to support the acquisition.
“(The multiple) is quite high compared to other information services companies. Shares typically react negatively with a high proportion of stock in a deal. It is a very large deal for Nasdaq which has high execution and integration risk,” said Owen Lau, an analyst at Oppenheimer & Co.
The deal comprises of $5.75 billion in cash and 85.6 million shares of Nasdaq common stock. The debt that Nasdaq will issue will bring its leverage to 4.7 times by the time the deal is completed. Nasdaq plans to bring down leverage levels to 4 times within the next 18 months. The deal is expected to close within six to nine months.
“Nasdaq was a $28 billion company that is levering up to do a $10.5 billion acquisition to pay 18 times revenues from private equity sellers. That is a lot for shareholders to process,” said Michael O’Rourke, chief market strategist at JonesTrading.
But Nasdaq said buying Adenza is expected to increase the medium-term organic revenue growth outlook for its Solutions Businesses, which designs and develops financial software for investors, from 7%-10% to 8%-11%.
Adenza is expected to hit about $590 million in annual 2023 revenue, Nasdaq said.
“Our clients are also investing to integrate emerging technology into their businesses, particularly artificial intelligence and cloud. And we believe these trends will only intensify in the future,” Chief Executive Adena Friedman said on a call with analysts.
Nasdaq sells technology products to other exchanges and financial companies across the world.
Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are financial advisors to Nasdaq, while Qatalyst Partners LP is lead financial advisor to Thoma Bravo and Adenza. Wachtell, Lipton, Rosen & Katz is serving as legal advisor to Nasdaq, while Kirkland & Ellis LLP is serving as legal advisor to Thoma Bravo and Adenza.
