Nasdaq Expands Fintech Footprint with $10.5 Billion Acquisition of Adenza, But Shareholders Left Stunned
Diversifying Beyond Exchanges with Adenza Acquisition, Investors React
15 June 2023
Nasdaq acquires software firm Adenza from Thoma Bravo for $10.5 billion, expanding its financial technology presence.
Shareholders express concern as Nasdaq's shares plummet over 10% following the announcement, questioning the high price paid for the acquisition.
Nasdaq defends the purchase, emphasizing the long-term potential and synergies of Adenza, aiming to diversify its operations and tap into the growing demand for financial technology solutions.
In a significant move to expand its financial technology presence, Nasdaq, the exchange operator, announced its agreement to acquire software firm Adenza from Thoma Bravo for $10.5 billion. While the deal signifies Nasdaq's ongoing efforts to diversify its offerings beyond traditional exchange operations, shareholders were met with a case of sticker shock as the news caused the company's shares to plummet over 10% to a nearly one-year low. In this blog post, we will delve into the details of the acquisition, the concerns raised by analysts and investors, and Nasdaq's strategic objectives.
Adenza, known for its risk management and regulatory software utilized by banks and brokerages, will provide Nasdaq with an opportunity to expand its fintech footprint. By adding Adenza's capabilities to its portfolio, Nasdaq aims to diversify its operations and tap into the growing demand for financial technology solutions. This acquisition follows a series of fintech deals executed by Nasdaq under the leadership of CEO Adena Friedman, highlighting the company's strategic focus on evolving beyond a traditional exchange operator.
Despite the strategic potential of the acquisition, investors expressed reservations about the hefty price Nasdaq agreed to pay for Adenza. Morningstar analyst Michael Miller criticized the valuation, stating that Nasdaq might have overpaid for the asset. The deal values Adenza at nearly 18 times its expected 2023 revenue, raising concerns among investors about the potential return on investment. Consequently, Nasdaq's shares experienced a significant decline, prompting S&P Global Ratings to downgrade the company's long-term issuer credit ratings.
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Nasdaq CEO Adena Friedman acknowledged the initial skepticism from investors and emphasized the need for time to digest the details of the acquisition. Friedman defended the purchase, asserting that Adenza presents an exceptional opportunity, although it may take time for investors to fully comprehend its value. Adenza, formed through the merger of Calypso Technologies and AxiomSL in 2021, is projected to generate approximately $590 million in revenue this year. Nasdaq remains confident in the long-term potential and synergies that Adenza brings to the table.
Nasdaq's acquisition of Adenza is part of a broader acquisition strategy aimed at diversifying its technology offerings and intellectual property. In recent years, Nasdaq has made notable acquisitions such as OMX, International Securities Exchange, eVestement, and Verafin. Through these strategic moves, Nasdaq has successfully transformed from a traditional exchange and transaction-based business into a software-centric company. The integration of these acquired businesses has been a strength for Nasdaq, reinforcing its position as a leading provider of financial software solutions.
While the acquisition of Adenza raises short-term concerns, Nasdaq believes it has acquired an exceptional asset at an appropriate price. Nasdaq's Solutions Businesses, responsible for designing and developing financial software, are expected to experience increased medium-term organic revenue growth, projected to range from 8% to 11%. Despite the increased debt resulting from the acquisition, Nasdaq intends to reduce its leverage significantly within 18 months. The deal is slated to close within six to nine months, further solidifying Nasdaq's position as a key player in the fintech space.