Nasdaq is looking to increase the market size for its products. This has led the exchange operator to announce a bet of $10.5 billion on Adenza, a provider of financial software.
Nasdaq shares have fallen by almost 12% after it announced a bet of $10.5 billion on Adenza, a provider of financial software.
Nasdaq aims to grow the market for its products, which include risk management, regulatory software, and anti-financial crime technology.The deal has caused a 10% decline in the stock price, but analysts feel it is consistent with CEO Adena Friedman’s ambition to convert Nasdaq into a financial technology business. . The agreement is anticipated to increase profitability and look to be a better value.
Adenza would have access to additional banking customers in the US and Europe as a member of Nasdaq, increasing its ability to generate money. With Adenza, Nasdaq’s recurring revenues will increase from 71% to almost 77% of total sales. When Friedman took over in 2017, Nasdaq’s valuation was among the lowest in the exchange sector. It is currently one of the highest thanks to the company’s rising recurring revenues.
Analysts think the purchase is risky and the upfront cost is high as a result. Adenza is being purchased by Nasdaq for about 31 times earnings before interest, taxes, depreciation, and amortization (EBITDA), which is comparable to the price Thoma Bravo paid for the regulatory software company AxiomSL and the financial software manufacturer Calypso, which it later combined to become Adenza. Thoma Bravo eliminated $30 million in expenses from Adenza between July and December of last year, mostly by eliminating redundant personnel and real estate. The multiple will be closer to the mid-20s if Nasdaq eliminates costs as well.
As it has done with prior purchases, Nasdaq may also wring out more revenue. Nasdaq acquired Verafin, a cloud-based technology used by over 3,500 small and medium-sized banks and credit unions to identify, investigate, and report financial misconduct and money laundering, for $2.75 billion in February 2021. Adenza’s tier 3 and tier 2 bank clients offer cross-selling opportunities.
Conclusion
Nasdaq is betting $10.5 billion on financial software business Adenza, with the goal of expanding its market for risk management, regulatory software, and anti-financial crime technologies. The deal has caused a 10% decline in the stock price, but analysts feel it is consistent with CEO Adena Friedman’s ambition to convert Nasdaq into a financial technology business. Adenza will get access to additional banking clients in the United States and Europe, boosting revenue more than Nasdaq could alone.
