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Nasdaq to Boost Information Services with eVestment Buyout

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Nasdaq Inc. (NDAQ - Free Report) has announced that it will buy eVestment for $705 million. The transaction is expected to culminate in the fourth quarter of 2017. The acquisition will help Nasdaq boost its global information services business. The company will fund the acquisition through cash and debt.

Acquisition Rationale

eVestment is an industry leading content and analytics provider. Asset managers, investment consultants and asset owners use its 2,800 individual data points on more than 74,000 investment vehicles for decision making.  eVestment boasts client base of 2,000 including 92% of the top asset managers, 76% of the top consulting firms and 80% of the top 20 pension funds.

eVestment along with Nasdaq’s surveillance technology, SMARTS, Analytics Hub and Mutual Fund Quotation Service operations will help the acquirer expand buy side relationships. This move reflects Nasdaq’s strategic initiatives to grow by diversifying its business beyond hosting stock trading.

Addition of eVestment will ensure revenue and cash flow generation, apart from cushioning solid growth for Nasdaq that in turn will also enhance the acquirer’s shareholder returns.  

On the other hand, eVestment stands to gain from Nasdaq’s global presence. Per Jim Minnick, Chief Executive Officer and Co-founder, eVestment has its business boomed 12% annually since 2013. Leveraging Nasdaq’s information services offerings, eVestment can also boost its capabilities to serve clients better.

Nasdaq expects this acquisition to help generate double-digit shareholder returns. The Zacks Rank #3 (Hold) securities exchange intends to lower leverage while focusing on capital deployment by increasing dividend and pursuing share buybacks.

Impressive Inorganic Growth Story

Nasdaq has grown meaningfully over the years through a number of strategic expansions. Acquisition of Chi-X Canada aided Nasdaq to gain direct access to the Canadian equities market. Marketwired and Boardvantage acquisitions fortified its Corporate Solutions business while International Securities Exchange expanded its technology offering. Nasdaq identified between $10 million and $20 million as additional synergies to be realized once platform transitions conclude.

Earlier in July, Nasdaq had agreed to purchase Sybenetix to ramp up its buy-side product offerings.

Nasdaq’s shares have gained 4.0% quarter to date, outperforming the 0.6% increase of the industry. Strategic initiatives undertaken by the company to feed its product and service capabilities, which in turn fuel growth, should continue to drive the shares higher.

Players in the securities and exchange industry have been facing severe competition as increased market consolidation tends to reduce market share and leverage rate of business. Hence, strategic takeovers like the one mentioned above are expected to help the securities exchange retain its market space.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Atlas Financial Holdings, Inc. (AFH - Free Report) , Markel Corporation (MKL - Free Report) and Mercury General Corporation (MCY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%

Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%.

Mercury General Corporation engages in writing personal automobile insurance in the United States. The company delivered positive surprises in three of the trailing four quarters with an average beat of 1.06%.

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