NASDAQ AND ITS LARGEST M&A
- Terus
- Jun 29, 2023
- 2 min read
Insights about boards and directors
In June of this year, Nasdaq made its largest acquisition in history, paying $10.5 billion for Adenza, a company that provides software for banks and brokerages, as published by Brazil Journal on 12/06/2023.
The fact is that Nasdaq shareholders received the news with astonishment, skepticism, and even disapproval. The day after the transaction was announced, shareholders sold heavily, and the stock plummeted 12%.
The message from the shareholders was clear: Nasdaq paid too much for an asset that is worth much less.
According to Brazil Journal, the transaction valued Adenza at 18 times its revenue, which is expected to reach $600 million this year, and at 31 times the estimated EBITDA for 2023.
BUSINESS INSIGHTS ON THE BOARD OF DIRECTORS AND MANAGEMENT TO DEFEND VALUATION TO SHAREHOLDERS
1. RETURN: The expected return just to "break even" on the transaction is one-third of a century! And that's if everything goes right. It's a long time and a very uncertain investment.
2. BOARD OF DIRECTORS: What economic justifications do the board members have to approve a transaction that has an 82% market premium? (31 times the market's 17 EBITDA)
3. DISSENTING VOTES: Were there dissenting votes on the acquisition? What arguments did these board members present, and how did the management and advisors address the justifications for the dissenting vote and bring these arguments to the negotiation table?
4. DIRECTORS AND ADVISORS: What is the negotiation capacity and skill of the transaction leaders with the buyers?
5. ACQUIRED COMPANY VS. PRODUCT DEVELOPMENT: Did the directors present an alternative to the acquisition proposal to the Board of Directors? For example, instead of paying an 82% premium, investing smaller amounts of money to develop similar (or better) products than Adenza's and launching them in the market?
6. BUSINESS ANALYSIS: Did the management develop an adequate market analysis to determine if there are any smaller competitors that could produce the same product and achieve the same commercial reach with the support of NASDAQ?
7. COMPETITION: Did the management evaluate the potential and ability of Adenza's competitors to develop products and gain market share from Adenza in the next 31 years, during which Nasdaq will wait for the return on investment?
CONCLUSION:
In cases of critical decisions for shareholders, the Board of Directors must play a strong role in countering the management's understanding, to the point of exhausting all justifications and alternatives to a risky and very expensive decision that will be paid for with Nasdaq's money.
Learn more about the importance of having a Board of Directors and governance rules that work to increase the value of your company and generate more dividends for the shareholders.
Get in touch with Terus Business Consulting in Brazil right now and let's understand the challenges, dilemmas and needs!
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