Why Nasdaq Shares Are Slipping Today

Nasdaq Inc NDAQ disclosed an agreement to acquire Adenza from Thoma Bravo for $10.5 billion in cash and common shares.

After-deal closure, Nasdaq will issue around 14.9% of its outstanding shares to Thoma Bravo.

Adenza offers mission-critical risk management and regulatory software to the financial services industry, with a robust client base (98% gross retention and 115% net retention) and a solid financial profile (expected revenues of $590 million and an adjusted EBITDA margin of 58% in 2023).

The acquisition complements Nasdaq's Marketplace Technology and Anti-Financial Crime solutions and boosts its offering across risk management, regulatory, and capital markets software and technology solutions.

The transaction is expected to close within six to nine months, subject to customary closing conditions.

Outlook: With the acquisition, Nasdaq expects ARR (as a percentage of pro forma total revenue) to grow to 60% in 2023 (vs. 56% in 2022) and enhance Solutions Businesses to 77% in 2023 from 71% today. 

Nasdaq expects adjusted EBITDA margins of 57% on a 2023 pro forma basis from 55% and the addition of about $300 million of annual unlevered pre-tax cash flow. 

The company also increases medium-term organic revenue growth guidance for its Solutions Businesses to 8%-11% from 7%-10%. 

Nasdaq also expects to steadily increase its dividend per share and achieve a dividend payout ratio of 35%-38% within three to four years.

Synergies: By the end of year two, the buyout is anticipated to deliver adjusted EPS accretion and achieve $80 million in run-rate net expense synergies. 

Also, Nasdaq expects run-rate revenue synergies of $50 million in the medium term and $100 million in the long term.

"The addition of Adenza....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 year. 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," said Tal Cohen, President of Market Platforms, Nasdaq.

Price Action: NDAQ shares are trading lower by 6.62% at $54.00 premarket on the last check Monday.