NASDAQ OMX Group Inc is buying private Dorsey Wright for $225 million in line with the exchanges plan to diversify its business.
“We see ourselves as a major player in the index space,” said Adena Friedman, president of global capital access, technology and insights at Nasdaq, cited by the Financial Times. “We believe this is a big part of our strategic future.” The deal was financed by both dept and cash.
The deal marks another tie-up between a stock exchange and an index provider. Last year, the London Stock Exchange paid $2.7 billion in an agreement to acquire the Russell family of global equity indices.
Exchanges profits from traditional stock trading are decreasing, despite many indices being traded near highs, as more and more investors shake-up their strategies and focus more on a passive market approach, like ETFs.
Privately held by equity firm Falfurrias Capital Partners and based in Richmond, Virginia, Dorsey Wright specializes in relative strength analysis and indices. The companys clients include ETF providers PowerShares and First Trust and retail brokers, who purchase analytics from Dorsey Wright.
The recent purchase outlines Nasdaq’s interest towards the so-called smart beta strategies, which offer a substitute to the traditional capitalization-weighted indices. The smart strategies are aimed at retaining the benefits from the traditional ones, while also offering the opportunity to achieve superior performance.
“Assets under management tracking indices are growing at 13 per cent overall. Smart beta growing is at 24 per cent,” Ms. Friedman said. “We want to make sure we continue to build out our presence there. In our opinion, the next phase in index investment will be from straight passive management to smart beta.”
The acquisition will bring around $5 billion of licensed ETF assets to Nasdaqs already existing arsenal of $40 billion assets involved in smart beta indices. The company currently holds around 10% of the market, mainly focused on dividend strategies.
Nasdaq does not intent to make any big index-related purchases as they do not meet the companys return profile, and would rather focus on smaller acquisition such as the the Dorsey Wright as it is “very easy to digest, very easy to integrate,” Ms. Friedman said.
NASDAQ OMX Group Inc lost 0.21% on Friday and closed at $47.86 on NASDAQ, marking a one-year increase of 22.09%. The company is valued at $8.02 billion. According to CNN Money the 15 analysts offering 12-month price forecasts for NASDAQ OMX Group Inc have a median target of $50.00, with a high estimate of $57.00 and a low estimate of $36.00. The median estimate represents a 4.47% increase from the last price of $47.86.
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