What happened
Typically, when investors talk about Nasdaq (NDAQ -0.28%), they are referring to the Nasdaq Composite index, or perhaps the abridged Nasdaq-100, but Nasdaq is also a company that runs the eponymous exchange, and today its stock was tumbling.
As of 3:12 p.m. ET, the stock was down 11.3% on news that it would buy financial software company Adenza from Thoma Bravo for $10.5 billion.
So what
The deal would be the biggest ever for the stock market exchange, and the company argued that it accelerates its "strategic vision to become the trusted fabric of the world's financial system."
The deal is in keeping with CEO Adena Friedman's aim to transition the company from an exchange operator, which is sensitive to trading volumes, to a more tech-forward company with steady revenue streams.
Adenza provides risk-management and regulatory software for the financial services sector, and the company is expected to bring in $590 million this year, giving it a price-to-sales ratio of about 18. It's also expected to deliver 15% organic revenue growth and a 58% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.
The deal with Thoma Bravo, which is a private equity firm known for buying software companies, is a cash-and-stock deal that will give it a 14.9% stake in Nasdaq.
Now what
The market's reaction seemed to indicate that investors thought Nasdaq was overpaying for the company, and it may also be skeptical of the deal regardless of the price tag.
Adenza resulted from the merger of two software companies, Calypso and Axiom, that Thoma Bravo had previously acquired. It's unclear how much Thoma Bravo paid for them, but the deal is likely a win for the PE firm.
At this point, it seems too early to judge the wisdom of the acquisition, but at roughly 40% of Nasdaq's market cap, it's a steep price for the financial services company.
The deal will dilute shareholders and add to the company's debt burden, but Nasdaq expects it to be accretive to earnings after two years.
