In a record-breaking deal, Nasdaq has agreed to acquire software company Adenza, a property of Thoma Bravo, for a hefty sum of $10.5 billion, thereby accelerating its ambition to be a tech-centric entity.
Nasdaq, along with its competitors, has been on a quest to diversify its technology and intellectual property portfolio, particularly since market regulations in 2005 allowed brokers to challenge the equity trading landscape. This ongoing effort has witnessed significant purchases including OMX, the Nordic markets proprietor, for $3.7 billion in 2007, International Securities Exchange for $1.1 billion in 2016, and Verafin, an anti-financial crime software firm, for $2.75 billion in 2020.
Used extensively by banks and brokerages, Adenza's software is expected to further diversify Nasdaq's scope, taking it beyond its traditional function as a stock exchange operator. As part of this arrangement, Thoma Bravo will receive a 14.9% stake in Nasdaq, effectively making the private equity firm one of Nasdaq's largest shareholders. In addition, Thoma Bravo's managing partner, Holden Spaht, is predicted to join Nasdaq's board.
"The integration of Adenza with Nasdaq has a greater value than the individual parts. Nasdaq provides considerable global brand recognition that I believe will boost Adenza's sales, in addition to the revenue and expense synergies," Spaht commented during an interview.
Despite this optimistic outlook, Nasdaq shares witnessed a near 10% drop to $52.39 on Monday morning, as investors perceived the acquisition as a costly gamble. Nasdaq is funding the deal with about $5.9 billion of debt, and has evaluated Adenza at approximately 31 times the company's 2023 pre-tax earnings.
The agreement includes $5.75 billion in cash and 85.6 million shares of Nasdaq common stock, bringing the leverage of Nasdaq to 4.7 times at the time of deal completion. The company aims to decrease leverage to 4 times within the next 18 months. Completion of the deal is expected in six to nine months.
The enormity of the deal drew concerns from industry experts. "The $10.5 billion acquisition, amounting to 18 times revenues, is a lot for the shareholders of a $28 billion company to digest," stated Michael O'Rourke, chief market strategist at JonesTrading.
However, Nasdaq remains positive, claiming the acquisition is expected to increase medium-term organic revenue growth prospects for its Solutions Businesses, which create financial software for investors, from the current 7%-10% to an improved 8%-11%. Adenza's projected annual revenue for 2023 is around $590 million.
Adena Friedman, Nasdaq's Chief Executive, highlighted during a call with analysts that "Our clients are making significant investments in integrating emerging technology into their operations, especially artificial intelligence and cloud. We anticipate these trends to escalate in the future."
Nasdaq continues to market technology products globally to various exchanges and financial firms. The acquisition of Adenza is advised by Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, while Qatalyst Partners LP advises Thoma Bravo and Adenza. Legal advice to Nasdaq is provided by Wachtell, Lipton, Rosen & Katz, with Kirkland & Ellis LLP serving as the legal advisor to Thoma Bravo and Adenza.
