On Monday, Nasdaq OMX Group Inc. (NDAQ - Analyst Report) culminated the acquisition of BGC Partners Inc.’s (BGCP - Snapshot Report) electronic trading platform for benchmark U.S. Treasuries – eSpeed. The deal was inked in Apr 2013 and valued at $1.23 billion.
Nasdaq had then agreed to pay BGC $750 million in cash, while about $484 million was to be paid in stock. The shares will be paid out by Nasdaq over a 15-year period with annual issuance of about 1.0 million shares, depending on the performance of the operation. Excluding transaction costs, the acquisition is projected to deliver incremental earnings and lucrative returns on capital within its first year.
Meanwhile, the eSpeed platform will be incorporated into Nasdaq’s Transaction Services business to enhance the OTC market and to capitalize on the strong demand for diverse instruments. On the other hand, the U.S. Treasury data products will be integrated into the company’s Global Information Services, boosting its data product portfolio.
With annual revenue generation of about $100 million, eSpeed trades in U.S. Treasury notes and bonds with a maturity profile anywhere between 2 and 30 years. These highly liquid bonds are primarily traded by the bank giants and have a daily turnover of over $500 billion.
The acquisition of eSpeed not only adds to the company’s fixed-income portfolio but also diversifies its business profile, thereby fortifying Nasdaq’s market position within investment services as well.
Nasdaq Expands in Istanbul
Yesterday, Nasdaq also announced a strategic alliance with the bourse of Istanbul to offer its globally comparable, superior-quality and complete market technology. This will likely boost Istanbul’s global presence as a stock exchange operator, while enhancing Nasdaq’s non-transaction based revenue sources.
Over the past few quarters, revenues from equity and derivative trading have been marred by declining volumes amid the market volatility as well as unfavorable currency and interest rate fluctuations. Hence, the decision to boost its technology and data revenue across the globe should likely help Nasdaq witness positive results in the future.
While Nasdaq and BGC carry a Zacks Rank #3 (Hold), rival CME Group Inc. (CME - Analyst Report) has a Zacks Rank #2 (Buy). Another outperformer of the stock exchange industry, CBOE Holdings Inc. (CBOE - Analyst Report) holds a Zacks Rank #1 (Strong Buy).