Nasdaq – a technology company serving the global financial system – announced recently it has entered into a definitive agreement to acquire Adenza, a provider of mission-critical risk management and regulatory software to the financial services industry, from Thoma Bravo for $10.5 billion in cash and shares of common stock. This acquisition accelerates Nasdaq’s strategic vision to become the trusted fabric of the world’s financial system. And upon the closing of the transaction, Holden Spaht, a Managing Partner at Thoma Bravo, is expected to be appointed to Nasdaq’s Board of Directors, which will be expanded to 12 members.
Adenza is known as a fast-growing software company created through the combination of two highly respected and well-recognized global brands: Calypso and AxiomSL. Calypso serves capital markets participants with end-to-end treasury, risk, and collateral management workflows. And AxiomSL supports financial institutions with leading regulatory and compliance software.
The addition of Adenza to Nasdaq’s renowned brand and platform of mission-critical solutions complements Nasdaq’s Marketplace Technology and Anti-Financial Crime solutions and significantly enhances Nasdaq’s offerings across an even broader spectrum of regulatory technology, compliance, and risk management solutions. And with Adenza, Nasdaq will also be able to provide comprehensive support to financial institutions, establishing a multi-asset class, full trade lifecycle platform with unmatched regulatory technology solutions.
Adenza features an attractive financial profile with approximately $590 million of 2023E revenue, organic revenue growth1 of approximately 15%, annual recurring revenue growth of 18%, and an adjusted EBITDA margin of 58%. And the company has a loyal and growing client base, with 98% gross retention, 115% net retention, and a durable mix of approximately 80% recurring revenue. Plus the addition of Adenza is projected to enhance Nasdaq’s already strong financial profile by growing Solutions Businesses revenue from 71% of total revenue today to 77% in 2023E, increasing adjusted EBITDA margin to 57%3, and adding approximately $300 million of annual unlevered pre-tax cash flow.
Strategic Rationale
1.) The acquisition of Adenza is an opportunity to align two great cultures with complementary technologies and client reach to create a world-class technology solutions provider for the financial industry. And both Nasdaq and Adenza drive success with similar client-centric, results-oriented, and innovative cultures. Nasdaq’s trusted brand and leading artificial intelligence and cloud capabilities, combined with Adenza’s modular solutions and streamlined go-to-market operating model, significantly enhances the value proposition to clients with an even broader, more scalable suite of software and technology solutions.
2.) The deal enables Nasdaq to serve an expanded client base with holistic, multi-asset-class, and cloud-enabled risk and regulatory management solutions. And with a shared global footprint, Adenza brings additional relationships across the European banking system to Nasdaq’s strong presence in North America and the Asia Pacific region, positioning the business to meet worldwide demand for outsourced risk management and regulatory solutions. Nasdaq and Adenza also bring together complementary capabilities in asset classes to address the full spectrum of clients’ needs from over-the-counter fixed income to listed equities.
3.) Adenza’s focus is uniquely centered around key risk and regulatory trends affecting financial institutions, ranging from continuously evolving regulation and reporting complexity to ongoing digitization of markets and migration to the cloud. And Adenza serves a $10 billion SAM growing 8% per year, increasing Nasdaq’s SAM by approximately 40% to $34 billion.
4.) This acquisition is expected to grow Nasdaq’s ARR as a percentage of 2023 pro forma total revenue to 60% from 56% in 2022 and increase Nasdaq’s Solutions Businesses as a percentage of 2023 pro forma total revenue to 77%, from 71% today. And it also increases Nasdaq’s Solutions Businesses medium-term organic revenue growth outlook from 7-10% to 8-11%. The deal also improves Nasdaq’s adjusted EBITDA margins from 55%7 to 57% on a 2023 pro forma basis. This acquisition is expected to enhance Nasdaq’s growth, margins, and revenue quality and deliver non-GAAP diluted EPS accretion by the end of year two.
5.) The addition of Adenza offers significant value creation potential over the medium and long term. And Nasdaq expects to achieve $80 million in run-rate net expense synergies by the end of year two through functional alignment, product rationalization, location optimization, and consolidation of vendors and real estate. This transaction is also expected to unlock additional value through cross-sell opportunities, with anticipated run-rate revenue synergies of $50 million in the medium term and $100 million over the long term.
6.) Adenza meets Nasdaq’s acquisition criteria across all dimensions, which is delivering tight strategic fit and cultural alignment, enhancing performance and valuation potential, and meeting clear and consistent financial requirements. And Nasdaq’s enterprise-wide return on invested capital will return to greater than 10% by year 5.
Financing / Balance Sheet Impact / Approvals
Nasdaq is buying Adenza for $10.5 billion, comprised of $5.75 billion in cash and 85.6 million shares of Nasdaq common stock, based on the volume-weighted average price per share over 15 consecutive trading days prior to signing. And Nasdaq has obtained fully committed bridge financing for the cash portion of the consideration and plans to issue approximately $5.9 billion of debt between signing and closing and use the proceeds to replace the bridge commitment.
At the closing of the deal, Nasdaq will issue the shares to the owners of Adenza, which is a company controlled by Thoma Bravo, representing approximately 14.9% of the outstanding shares of Nasdaq.
Following the transaction, Nasdaq expects leverage of approximately 4.7x and investment grade ratings of BBB/Baa2 Stable. Nasdaq is committed to reducing leverage to 4.0x in 18 months and to approximately 3.3x in 36 months.
Nasdaq plans to pursue its existing capital deployment plan, including steadily increasing its dividend per share and dividend payout ratio1 to achieve 35-38% within 3 to 4 years. And the company intends to repurchase shares over time to partially offset dilution from the transaction in addition to continuing to offset employee share-based compensation. The deal is subject to regulatory approvals and other customary closing conditions and is expected to close within 6 to 9 months.
KEY QUOTES:
“This is an exceptional opportunity to acquire a leading software company that enhances Nasdaq’s position at the heart of the global financial system. The acquisition of Adenza brings together two world-class franchises steeped in market infrastructure, regulatory, and risk management expertise at a time when financial institutions are navigating some of the most complex market dynamics in history. From fast-evolving global regulations to rapidly increasing pressures to modernize infrastructure, our clients are seeking trusted partners equipped to support them in this challenging environment. Nasdaq aspires to be that partner every day, and with Adenza we can offer an even broader range of mission-critical solutions that enhance the liquidity, transparency, and integrity of the world’s financial system.”
— Adena Friedman, Chair and Chief Executive Officer, Nasdaq
“The addition of Adenza accelerates our ambition to modernize and advance the world’s economies. It also introduces a fast-growing $10 billion serviceable addressable market to Nasdaq. Since the implementation of Dodd-Frank in 2010, banks have increased their compliance costs by more than $50 billion per year4. With Adenza, we will have a more complete suite of essential software and technology solutions that make managing risks and complying with regulations simpler and more efficient for our clients. With complementary capabilities and geographic footprints, we can see a clear path to deepening our client relationships globally with leading end-to-end platforms across risk, trading, and regulatory reporting.”
— Tal Cohen, President of Market Platforms, Nasdaq
“When we combined AxiomSL and Calypso almost two years ago under Didier Bouillard’s leadership, we had a vision to create a truly unique software franchise that could help financial institutions across the globe manage their most complex trading, risk, and regulatory reporting requirements. This acquisition is a clear validation of that strategy, and as part of Nasdaq, Adenza will be in a stronger position to build on its impressive momentum and serve an even larger global client base. Nasdaq has a long and impressive history of developing innovative solutions that have revolutionized the global capital markets, making them the perfect partner for this next phase of Adenza’s journey. We are excited to become a strategic shareholder in Nasdaq and bring our deep software and technology experience to help drive further innovation and digital transformation across the global financial system.”
— Holden Spaht, a Managing Partner at Thoma Bravo
“This transaction is an endorsement of the entire Adenza team and what we have built with Thoma Bravo, from our market-leading products to the immense value we have delivered for our customers. Together with Nasdaq, we will be in an even stronger position to take advantage of the growing market opportunities and to provide customers with expanded solutions to solve their most complex problems.”
— Didier Bouillard, Chief Executive Officer at Adenza
