What Does NASDAQ's ISE Acquisition Mean For Markets?

This week, Nasdaq Inc (NASDAQ: NDAQ) announced the acquisition of options giant ISE from Deutsche Boerse for $1.1 billion. In a new report, Credit Suisse analyst Ashley Serro gives the firm’s take on Nasdaq’s recent buyouts of ISE, Chi-X Canada and Marketwired.

According to Serro, the ISE deal is a wise use of Nasdaq’s cash.

“At current valuations, we believe that this deal is better than buying back stock or acquiring expensive index/business service properties and also comes at a reasonable multiple without drastically altering the non-transaction revenue mix," Serro explained.

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Credit Suisse estimates that ISE and the smaller acquisitions will provide about a $0.31/share (or 9.0 percent) boost to Nasdaq’s EPS.

Although ISE has a tumultuous past, Serro noted that the company has maintained relatively stable market share and pricing since 2012.

“Strategically, with the acquisition of ISE, NDAQ will become the largest player in the U.S. options market (with a portfolio of six options platforms) and, more importantly, the leader in the less competitive/less price sensitive complex options order market (we estimate 50 percent market share),” Serro added.

In addition, Credit Suisse believes that there will be some synergistic benefits to combining the two companies’ technologies.

Credit Suisse maintains its Outperform rating on Nasdaq, but has upped its price target from $65 to $68.

Disclosure: The author holds no position in the stocks mentioned.

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