Nasdaq Snags A Shrewd Deal With Thomson Reuters’ Business

December 13th, 2012 by Trefis Team
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Nasdaq OMX (NASDAQ:NDAQ) has announced that it will acquire Thomson Reuters’ investor relations, public relations and multimedia solutions businesses. [1] The deal is expected to complete in the first half of 2013 and will involve a transaction of $390 million in cash. The acquisition is a part of Nasdaq’s effort to diversify operations beyond the traditional trading services that it provides.

Moves like these are particularly important given the tepid trading volumes that Nasdaq has experienced this year. The U.S. matched equity volume and European equity volume for November were down 25% from the same period in 2011. Our price estimate of $29 on Nasdaq OMX’s stock is at a premium of 20% to the current market price.

See our full analysis for Nasdaq OMX| NYSE Euronext|CME Group

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Mitigating The Effects Of Uncertain Conditions

A third of Nasdaq’s $3.5 billion revenues are derived from non-transaction based streams like market data and access services, as these divisions do not involve transaction based expenses like rebates, brokerage, clearance and exchange fees, and the margins are much higher than the trading divisions. (Close to 50% compared to 25%)

Market data is the most important division for Nasdaq, accounting for a fifth of the total EBITDA, while U.S. derivatives trading and U.S. listing services account for 15%. Access services and market technology are the other two important divisions with 13% and 11% of the total EBITDA.

The three divisions that Nasdaq is acquiring from Thomson Reuters generated $233 million in revenues in the 12 months ending September. [2] This is about 7% of Nasdaq’s revenues in 2011. In the first nine months of 2012, the exchange reported a 13% increase in the U.S. market data revenues, helped by the acquisition of RapidData at the end 2011. With shrewd acquisitions like this and the changing landscape in which a capricious market and evolving technology will lead to increased demand for market data. We expect a steady increase in Nasdaq’s non-transaction revenues.

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A third of Nasdaq’s $3.5 billion revenues are derived from non-transaction based streams like Market Data and Access Services. As these divisions do not involve transaction based expenses like rebates, brokerage, clearance and exchange fees, the margins are much higher than trading divisions. (Close to 50% compared to 25%)

Notes:
  1. NASDAQ OMX to Acquire Thomson Reuters Investor Relations, Public Relations and Multimedia Solutions Businesses, Press Release, 12th December, 2012 [↩]
  2. Nasdaq to buy Thomson Reuters PR, IR units for $390 million, 4-Traders, 12th December, 2012 [↩]