Banking & Finance

What Will Dorsey, Wright Add to Nasdaq OMX?

The Nasdaq OMX Group Inc. (NASDAQ: NDAQ) has announced that it will acquire Dorsey, Wright & Associates, which is a market leader in data analytics, passive indexing and smart-beta strategies. The acquisition will cost $225 million, which will be funded through a mix of debt and cash on hand. The deal is expected to close in the first quarter of 2015.

Ultimately Dorsey, Wright & Associates will improve Nasdaq’s capacity for growth in the index business over asset classes and geographies. The acquisition will combine Dorsey, Wright & Associates’ 17 exchange traded funds (ETFs) and Nasdaq’s 69 licensed smart-beta ETFs focused primarily on dividend and income strategies.

After adding in the new ETFs, Nasdaq Global Indexes will become one of the largest providers of smart-beta indexes, with nearly $45 billion in assets benchmarked to its family of Smart Beta indexes and over $105 billion benchmarked to all Nasdaq indexes.

Adena Friedman, president of Nasdaq, commented on the acquisition:

Our index business has been a strong growth area for Nasdaq over the last decade, and the acquisition of Dorsey Wright & Associates will further cement our position as a major player and industry innovator. We are always looking for opportunities to expand Nasdaq’s index offering with quality products that deepen our relationships with the investing community. DWA provides a natural complement to our business and growth strategy.

In 2012, Nasdaq acquired the index business Mergent. In the two years since the completion of that deal, Mergent has surpassed its business targets and returns, resulting in licensed asset growth of 100%.

The deal with Dorsey, Wright & Associates is expected to be immediately accretive to Nasdaq’s earnings at closing, and Nasdaq does not expect a material impact on its financial leverage or capital return strategy.

Shares of Nasdaq OMX last traded at $47.86. The stock has a consensus analyst price target of $48.71 and a 52-week trading range of $33.49 to $49.71. The company has a market cap near $8 billion.

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