NASDAQ Buys Dorsey Wright for $225 Million

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Nasdaq announced that it will acquire technical analysis provider Dorsey, Wright & Associates, LLC (DWA).   However, the motivation for the purchase is not DWA’s research, but its 17 ETFs and $5.5 billion in assets under management.  DWA is a poster child for diversifying research into investment products.

Nasdaq will acquire DWA for $225 million funded through a mix of debt and cash on hand.  We estimate the valuation at between 5x and 6x revenues.

Dorsey Wright & Associates was founded in 1987 and targeted its technical analysis platform to financial intermediaries, primarily retail brokers.  The firm has 22 employees, most based in Richmond VA with 4 in Pasadena CA.  Its research covers 40,000 stocks, funds, and ETFs globally.

DWA has developed a sophisticated array of investment products derived from its research.  DWA partnered with PowerShares to develop a series of ETFs based on DWA indices driven by stocks with high relative strength relative to their sectors.  Its largest ETF, the $1.6 billion PowerShares DWA Momentum Portfolio (NYSE:PDP) has outperformed the S&P 500 index since inception in 2007 and achieved a top-decile ranking among ETFs in its Morningstar category.

DWA is the sub-advisor on two co-branded Arrow Funds mutual funds.  The firm also acts as a sub-advisor on unit investment trusts marketed by First Trust based on DWA indices.  Last year DWA launched the First Trust Dorsey Wright Focus 5 (NASDAQ:FV), which became the most successful ETF launch during 2014 by attracting more than $1.2 billion in assets in less than 10 months.

DWA  has even issued last year a 7 year market linked CD which is tied to one of its proprietary indices.  It also manages separate accounts affiliated with smaller brokerages through its asset management affiliate.

A majority of the company was sold in 2011 to Falfurrias Capital Partners, a Charlotte, N.C.-based private equity firm founded by former Bank of America Chairman and CEO Hugh McColl Jr. and former Bank of America CFO Marc D. Oken.  The sale to NASDAQ was prompted by the private equity firm desiring an exit, and the majority of the sale proceeds will go to Falfurrias.  In 2011, DWA had $1.7 billion in AUM and a primary motivation for the sale to private equity was to scale the asset management business further.

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About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email: Sanford.Bragg@integrity-research.com

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