Nasdaq to buy Adenza for $10.5bn in US exchange operator’s biggest deal

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

The cash and stock acquisition is expected to “significantly” enhance Nasdaq’s offerings in regulatory technology, compliance and risk management, the company said when announcing the transaction on Monday. It comes as competitors like 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 heart of the global financial system,” said Adena Friedman, Nasdaq chief executive.

Shares in Nasdaq opened more than 9 per cent lower. The stock has fallen almost 10 per cent over the past six months, underperforming rival exchanges including ICE, CME Group and LSE, which have gained between 5 and 17 per cent.

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

Thoma Bravo, a buyouts group that specialises in software deals and manages $127bn in assets, is set to receive a multibillion dollar windfall from the sale.

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

Thoma Bravo is set to receive $5.75bn in cash from Nasdaq and an equity stake of about 15 per cent in the company, worth nearly $5bn 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 investment. Spaht 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 lower their exposure to volatile trading conditions and build products beyond offering companies access to capital.

In the first quarter of this year, revenue from Nasdaq’s solutions unit — in which Adenza will sit — grew 5 per cent and made up 71 per cent of its $914mn net revenues, versus 3 per cent growth for its trading business, which will be less than 25 per cent of total revenue after the deal. 

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

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

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

Earlier this year, Blackstone sold a block of about $3bn in LSE shares, monetising more of the shares it received from selling Refinitiv, which has become one of the most profitable investments in its history.

Nasdaq will raise about $5.9bn in new debt from a group of banks led by its advisers Goldman Sachs and JPMorgan to finance the purchase of Adenza. Qatalyst Partners was the lead financial adviser to Thoma Bravo.

The acquisition is expected to result in Nasdaq retaining its investment grade status and will be followed by a deleveraging as it cuts debt from 4.7-times earnings before interest, taxes, depreciation and amortisation after the acquisition to a planned 3.3-times ebitda.

Nasdaq said the purchase would “enhance” its growth, margins, and revenue quality and “deliver non-GAAP diluted EPS accretion by the end of year two”.