Nasdaq to buy Adenza for $10.5 billion in largest deal for US exchange operator

Nasdaq is acquiring financial risk software company Adenza for $10.5 billion in its biggest-ever acquisition, as the world’s big exchange operators diversify from trading into more stable revenue streams such as data and risk management.

The company said the cash and stock acquisition is expected to “significantly” enhance its Nasdaq offering in regulatory technology, compliance and risk management. It comes as competitors such as the London Stock Exchange Group and Intercontinental Exchange have bought businesses focused on data and software.

“This is an exceptional opportunity to acquire a leading software company that enhances Nasdaq’s position at the center of the global financial system,” said Adena Friedman, Nasdaq’s chief executive.

Nasdaq shares were down 8 per cent in pre-market trading. The stock has fallen nearly 10 percent over the past six months, underperforming rival exchanges including ICE, CME Group and LSE, which have risen between 5 and 17 percent.

Adenza’s software is used by big banks to manage post-crisis regulations and will be incorporated into Nasdaq’s “solutions” business that accounts for more than 70 percent of the New York-based group’s revenue. Nasdaq said Adenza, which is owned by private equity firm Thoma Bravo, is expected to generate $590 million in revenue and $300 million in free cash flow this year.

Thoma Bravo, a buyout group that specializes in software deals and manages $127bn in assets, is set to reap multi-billion dollar gains from the sale.

The US-based investment group created Adenza by buying software firm Calypso for $3.7bn in 2021 and combining it with AxiomSL, a compliance software company, in 2020 at a reported price of around $2bn.

Thoma Bravo is set to receive $5.75 billion in cash from Nasdaq and an equity stake of about 15 percent in the company, about $5 billion at current prices.

“We are excited to become a strategic shareholder in Nasdaq,” said Holden Spaht, a managing partner at Thoma Bravo, who led the group’s investments. Spahat will also join Nasdaq’s board of directors.

Other large exchange groups have bought businesses from private equity firms in recent years as they seek to reduce their exposure to volatile trading conditions and build products beyond providing companies with access to capital.

In the first quarter of this year, revenue from Nasdaq’s solutions unit — in which Adenza will sit — rose 5 percent and made up 71 percent of its $914 million net revenue, versus a 3 percent increase for its trading business, which totaled revenue after the deal. less than 25 percent of

In 2020, New York Stock Exchange owner Intercontinental Exchange acquired mortgage software specialist Ellie May from Thoma Bravo for $11bn, another deal led by Spaht, one of the most successful private equity deals in recent years Was.

Exchange conglomerates are also becoming increasingly comfortable with using their stock to help fund their growth.

LSE Group, the parent company of the London Stock Exchange, acquired financial data and risk management business Refinitiv from Blackstone Group for $27 billion. Refinitiv’s cash and stock purchase of LSE turned LSE into a powerhouse vendor for hedging funds and investment groups using its financial data.

Earlier this year, Blackstone sold a block of nearly $3 billion in LSE shares, monetizing most of the shares it gained from selling to Refinitiv, in what has become one of the most profitable investments in its history.

Nasdaq will raise approximately $5.9 billion in new debt from a consortium of banks led by Goldman Sachs and JP Morgan to finance the purchase of Adenza.

The acquisition is expected to maintain Nasdaq’s investment grade status and will be followed by a deleveraging as it cuts debt from 4.7 times earnings before interest, taxes, depreciation and amortization to a planned 3.3 times EBITDA post-acquisition.

Nasdaq said the purchase will “enhance” its growth, margin and revenue quality and “deliver non-GAAP diluted EPS accretion through the end of two years”.