Nasdaq said on Monday it will buy Thoma Bravo-owned software firm Adenza for $10.5 billion in the exchange operator’s biggest acquisition so far, as it speeds 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.
However, its shares fell nearly 10% at $52.39 Monday morning on fears it was overpaying for Adenza. The deal comprises of $5.75 billion in cash and 85.6 million shares of Nasdaq common stock.
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.
The company said it intends to issue a near-15% stake to the owners of Adenza, which is controlled by Thoma Bravo, as part of the deal. The private equity firm will also have the right to appoint a nominee to Nasdaq’s board.
“Investors are not thrilled with the premium paid for Adenza at 31 times 2023 earnings before interest, taxes, depreciation and amortization (EBITDA), particularly as it has been so focused on bringing down its leverage,” Andrew Bond, analyst at Rosenblatt Securities said.
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%.
The deal is expected to close within six to nine months.
Adenza, which makes software used by banks and brokerages, is expected to hit about $590 million in annual 2023 revenue, Nasdaq added.
