Nasdaq’s $10.5 billion investment in Adenza, a little-known financial software startup, will help the exchange operator dramatically expand its risk management, regulatory, and anti-financial crime software markets.
On June 12, Nasdaq said it would buy Adenza from Thoma Bravo, sending its shares down almost 10%. Investors were shocked by the price. Since the deal, Nasdaq shares are down 12%.
In interviews, a prominent Nasdaq investor and two sources familiar with the proposal said the acquisition was in keeping with Chief Executive Adena Friedman’s push to turn Nasdaq into a financial technology firm, and the price might be justified.
The sources said Nasdaq paid about what Thoma Bravo spent on launching Adenza by combining two software firms. One source said Nasdaq intends to minimize overlapping costs to enhance profitability and make the purchase look cheaper. Analysts said Nasdaq would provide Adenza access to new US and European banking clients, boosting revenues.
Adenza will increase Nasdaq’s recurring revenues from 71% to 77%, which investors value for their dependability. Rosenblatt Securities analyst Andrew Bond said Nasdaq’s valuation had risen from one of the lowest in the exchange sector before Friedman took over to one of the highest currently.
“This acquisition doesn’t veer off from Nasdaq’s strategy or what Adena’s been pursuing since she’s been the CEO,” Bond said. “The cross-sell opportunities are significant.”
Analysts thought the upfront fee was high and the deal hazardous. Nasdaq, which had a $28 billion market valuation before the purchase, is paying for the acquisition with an even split of stock and cash. That dilutes shareholders and raises debt. Moody’s reduced Nasdaq’s debt to BBB from BBB+ on the deal.
“It does seem like they’re buying a high-quality asset but ultimately they’re paying a pretty high price,” Morningstar analyst Michael Miller said.
Nasdaq stated its price is fair.
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