Nasdaq’s Friedman hints at plans for Adenza post-acquisition

When Nasdaq announced its plans to acquire Adenza last month, the price tag—$10.5 billion—made some industry observers’ eyes water. But for others, it was simply another example of an exchange looking to diversify its product offering—and revenue streams—beyond listings.

Adenza was formed in 2021 by private equity firm Thoma Bravo after bringing together AxiomSL, a back-office risk management and regulatory reporting provider, with Calypso Technology, a provider of front- and-middle office trading and risk technology. Similar to how Deutsche Börse is looking to expand its own offering with the acquisition earlier this year of SimCorp—which specializes in portfolio management, trading and execution systems, and accounting—Nasdaq, too, wants to broaden its end-to-end workflow toolkit.

“The whole idea was to have an end-to-end solution for the market where middle-office risk and trading risk would get addressed,” a former AxiomSL executive told WatersTechnology after the deal was announced. They added that AxiomSL’s longstanding presence in the market captured 90% of tier-one banks over time, as they recognized the vendor’s ability to handle complex data involved in the regulatory reporting process. The infusion with AxiomSL allowed Calypso to enter a new segment of the market—the tier-one client list—a “technically very difficult” feat, as one solution focused on the trading book while one solution covered the banking book.

While not even a month has gone by, the eventual integration of Adenza was top of mind for Nasdaq CEO Adena Friedman—and investors—during the exchange operator’s earnings call earlier today.

“[The addition of Adenza] will accelerate our strategic journey, enabling us to deliver even more mission-critical platforms that enhance the liquidity, transparency and integrity of the global financial system,” Friedman said during the earnings call. “Adenza, combined with our powerful existing solutions, sets us up for faster growth and even greater success in the years to come.”

Friedman also pointed to an increasingly challenging regulatory environment, reiterating that the growth drivers in Adenza’s business come from new client sales, cross-sells and upsells to existing clients.

During the call, a slide noted that between 2021 to 2022, Calypso added 37 “new logos” with “upsells” to 160 clients, while AxiomSL added 27 logos and 117 clients. (The term “logo” refers to a new client who has not worked with a vendor before.) In the first half of this year, Calypso signed seven new clients and upsold to 40 existing clients, while AxiomSL added seven new logos—two of which were cross-sells to Calypso clients—and upsold to 25 existing clients.

To finance the deal—which has yet to close—Nasdaq has raised $5 billion of debt in dollar and Euro bond issuances. Since the deal was announced on June 12, Nasdaq’s shares have dropped about 11%. While the tone on the call was cordial, the rationale behind the Adenza deal was a recurring theme, with one investor asking Friedman, “What do you think investors aren’t getting about this acquisition?”

“It’s obviously a big capital allocation decision that we’re making, and so we’re trying to make sure that we continue the educational journey with investors,” she responded.

She continued: “It’s an exceptional asset; it’s got 15% growth. It has 98% gross revenue retention; 115% net retention. It is still signing on new clients across a spectrum of clientele around the world, and it upsells clients really successfully. We’re also seeing a lot of great tailwinds. Just from the changes in regulation, including the Fed announcement last week in terms of new proposed rules for the US banks that will obviously play into the capabilities … That is a very dynamic environment.”

A glimpse at the future?

When the acquisition was first announced, sources told WatersTechnology that Adenza’s platforms are sticky, with one source familiar with Adenza’s workings saying, “They have so many branches and tentacles into so many different parts of the bank, and they’ve transformed on top of them over the years. Good luck ever getting that out of the bank!”

Friedman also seemed to indicate that Nasdaq’s focus throughout the integration process will be getting the data in AxiomSL and Calypso to flow through Nasdaq’s systems.

“When Calypso and Axiom came together, they still had two discrete technology platforms. And I think that they do solve different needs, so it makes sense for those platforms to be discrete,” she said. “But they’re starting to demonstrate the power of the business by sharing data through modern APIs that they can cross over from one platform to another to service specific clients. And I think that’s going to help with cross-sells going forward.”

Friedman added that there was still unrealized potential for revenue synergies and cross-sells. She believes that when it comes to the larger banks, they’ll also be able to shorten sales cycles. By combining Nasdaq’s sales experience with AxiomSL’s and Calypso’s teams, they’ll be able to displace competitors, she said.

She also pointed out that Adenza has been slowly migrating its offerings to the cloud, something that exchanges across the globe have been focused on, but that’s especially true of Nasdaq, which announced a major partnership with Amazon Web Services in 2021. The fruits of that pairing can already be seen in its options markets. For Adenza, Friedman noted that 53% of Adenza’s sales in 2023 have been for cloud-deployed modules.

“That actually allows them to be a managed service provider, which then, of course, allows them to take a bigger share of wallet as they’re managing the product and not just deploying it,” she said.

Furthermore, Calypso has made a concerted push into the buy side—in the past, 3% of Calypso’s revenue came from the buy side; that figure reached 14% in the last few years.

“Those are all the reasons why we think the revenue growth is highly sustainable,” Friedman told analysts.