Acquisitions

We completed the following acquisitions in 2016, 2015 and 2014. Financial results of each transaction are included in our Consolidated Statements of Income from the date of each acquisition.

2016 Acquisitions



	Purchase Consideration		Total Net Assets (Liabilities) Acquired			Total Net Deferred Tax Liability			Acquired Intangible Assets		Goodwill
	(in millions)
ISE	$	1,070	$	83		$	(185	)	$	623	$	549
Boardvantage	242		28			(45		)	111		148
Marketwired	111		(1		)	(5		)	31		86
Nasdaq CXC	116		6			(20		)	76		54

The amounts in the table above represent the allocation of purchase price as of December 31, 2016. The preliminary allocations of the purchase price are subject to revision during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values, which may include tax and other estimates, during the measurement period will be recorded in the reporting period in which the adjustment amounts are determined. Changes to amounts recorded as assets and liabilities may result in a corresponding adjustment to goodwill.

See “Intangible Assets” below for further discussion of intangible assets acquired through our 2016 acquisitions.

Acquisition of ISE

On June 30, 2016, we acquired ISE for $1,070 million. We acquired net assets, at fair value, totaling $83 million and recorded a net deferred tax liability of $185 million, comprised of a deferred tax liability of $266 million and a deferred tax asset of $81 million, related to differences in the U.S. GAAP and tax basis of our investment in ISE. ISE is part of our Market Services, Information Services and Market Technology segments.

In May 2016, we issued the 2023 Notes and in June 2016, we issued the 2026 Notes to fund this acquisition. See “1.75% Senior Unsecured Notes,” and “3.85% Senior Unsecured Notes,” of Note 9, “Debt Obligations,” for further discussion.

Acquisition of Boardvantage

In May 2016, we acquired Boardvantage for $242 million ($197 million in cash paid plus $45 million in working capital adjustments, which primarily includes cash acquired). We acquired net assets, at fair value, totaling $28 million and recorded a net deferred tax liability of $45 million, comprised of a deferred tax liability of $46 million and a deferred tax asset of $1 million, related to differences in the U.S. GAAP and tax basis of our investment in Boardvantage. This acquisition expanded our Corporate Solutions governance business within our Corporate Services segment.

Nasdaq borrowed $197 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.

Acquisition of Marketwired

In February 2016, we acquired Marketwired for $111 million ($109 million in cash paid plus $2 million in working capital adjustments). We acquired net liabilities, at fair value, totaling $1 million and recorded a deferred tax liability of $10 million related to differences in the U.S. GAAP and tax basis of our investment in Marketwired. In the second quarter of 2016, we recorded a measurement period adjustment of $5 million to the estimated fair value of deferred tax liabilities to reflect a revised assessment following the receipt of new information. The adjustment resulted in a decrease to both deferred tax liabilities recorded and goodwill. The adjustment did not result in an impact to our Consolidated Statements of Income. Marketwired is part of our Corporate Solutions business within our Corporate Services segment.

Nasdaq borrowed $109 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.

Acquisition of Nasdaq CXC

In February 2016, we acquired Nasdaq CXC for $116 million ($115 million in cash paid plus $1 million in working capital adjustments). We acquired net assets, at fair value, totaling $6 million and recorded a deferred tax liability of $20 million related to differences in the U.S. GAAP and tax basis of our investment in Nasdaq CXC. Nasdaq CXC is part of our Market Services segment and our Data Products business within our Information Services segment.

Nasdaq used cash on hand and borrowed $55 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.

* * * * * *

2015 Acquisitions

We completed the following acquisitions in 2015. Financial results are included in our Consolidated Statements of Income from the date of each acquisition.



	Purchase Consideration		Total Net Assets Acquired		Total Net Deferred Tax Liability			Acquired Intangible Assets		Goodwill
	(in millions)
DWA	$	226	$	8	$	(34	)	$	141	$	111

We finalized the allocation of the purchase price for DWA in January 2016. There were no adjustments to the provisional values for this acquisition during the 12 month measurement period.

Acquisition of DWA

On January 30, 2015, we completed the acquisition of DWA for $226 million ($225 million cash paid plus $1 million in working capital adjustments). We acquired net assets, at fair value, totaling $8 million and recorded a deferred tax liability of $34 million related to differences in the U.S. GAAP and tax basis of our investment in DWA. DWA is part of our Data Products and Index Licensing and Services businesses within our Information Services segment.

Nasdaq used cash on hand and borrowed $100 million under the revolving credit commitment of the 2014 Credit Facility to fund this acquisition.

See “Intangible Assets” below for further discussion of intangible assets acquired in the DWA acquisition.

Acquisition of Full Ownership of NPM and Acquisition of SecondMarket

In October 2015, we acquired full ownership of NPM following the acquisition of the minority stake that was previously held by a third party. In addition, through NPM, we acquired SecondMarket. The purchase of the additional ownership interest in NPM and the acquisition of SecondMarket were purchased for an immaterial amount. NPM and SecondMarket are part of our Listing Services business within our Corporate Services segment.

2014 Acquisition

In March 2014, we completed the acquisition of the remaining 28.0% ownership interest in BWise that was previously held by a third party. BWise is part of our Market Technology segment.

Intangible Assets

The following table presents the details of acquired intangible assets in our 2016 and 2015 acquisitions. All acquired intangible assets with finite lives are amortized using the straight-line method.



	2016												2015
	ISE			Boardvantage			Marketwired			Nasdaq CXC			DWA
	($ in millions)
Intangible Assets
Exchange registrations	$	467		$	—		$	—		$	—		$	—
Discount rate used	8.6		%	—			—			—			—
Estimated average remaining useful life	Indefinite			—			—			—			—
Customer relationships	$	148		$	103		$	29		$	76		$	29
Discount rate used	9.1		%	15.5		%	16.4		%	10.3		%	17.5		%
Estimated average remaining useful life	13 years			14 years			6 years			17 years			15 years
Trade name	$	8		$	2		$	2		$	—		$	108
Discount rate used	8.6		%	15.0		%	15.8		%	—			17.0		%
Estimated average remaining useful life	Indefinite			1 year			2 years			—			Indefinite
Technology	$	—		$	6		$	—		$	—		$	4
Discount rate used	—			15.5		%	—			—			17.0		%
Estimated average remaining useful life	—			5 years			—			—			5 years
Total intangible assets	$	623		$	111		$	31		$	76		$	141

Exchange Registrations

As part of our acquisition of ISE we acquired exchange registrations. The exchange registrations represent licenses that provide ISE with the ability to operate its option exchanges. Nasdaq views these intangible assets as a perpetual license to operate the exchanges so long as ISE meets its regulatory requirements. Nasdaq selected a variation of the income approach called the Greenfield Approach to value the exchange registrations. The Greenfield Approach refers to a discounted cash flow analysis that assumes the buyer is building the exchange from a start-up business to a normalized level of operations as of the acquisition date. This discounted cash flow model considers the required resources and eventual returns from the build-out of operational exchanges and the acquisition of customers, once the exchange registrations are obtained. The advantage of this approach is that it reflects the actual expectations that will arise from an investment in the registrations and it directly values the registrations. The Greenfield Approach relies on assumptions regarding projected revenues, margins, capital expenditures, depreciation, and working capital during the two year pre-trade phase, the 10 year ramp-up period, as well as the terminal period.

In developing a discount rate for the exchange registrations, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.

Customer Relationships

As part of our acquisitions of ISE, Boardvantage, Marketwired, Nasdaq CXC, and DWA, we acquired customer relationships. Customer relationships represent the non-contractual and contractual relationships with customers.

Methodology

For our acquisitions of ISE, Boardvantage, Marketwired and Nasdaq CXC, customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

The DWA customer relationships were valued individually for each of DWA’s businesses using the income approach, specifically the with-and-without method. The with-and-without method is commonly used when the cash flows of a business can be estimated with and without the asset in place. The premise associated with this valuation technique is that the value of an asset is represented by the differences in the subject business’ cash flows under scenarios where (a) the asset is present and is used in operations (with); and (b) the asset is absent and not used in operations (without). Cash flow differentials are then discounted to present value to arrive at an estimate of fair value for the asset.

We estimated that without current customer relationships, it would take approximately 3-6 years, depending on the business, for the customer base to grow to 100.0% of current projected revenues. We also made estimates related to compensation levels and other expenses such as sales and marketing that would be incurred as the business was ramped up through the year in which the customer base would be expected to reach the level that currently exists.

Discount rate

The discount rates used reflect the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.

For our acquisitions of Marketwired, Nasdaq CXC and DWA, a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 15 years.

Estimated Useful Life

We estimate the remaining useful life based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method.

Trade Name

The DWA trade name is recognized in the industry and carries a reputation for quality. As such, DWA’s reputation and positive recognition embodied in the trade name is a valuable asset to Nasdaq. The trade name was considered the primary asset acquired in this transaction. In valuing the acquired trade name, we used the income approach, specifically the excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.

The discount rate used reflects the amount of risk associated with the hypothetical cash flows generated by the DWA trade name in the future. In developing a discount rate for the trade name, we estimated a weighted average cost of capital for the overall business and we employed this rate when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate, and a discounted tax amortization benefit was added to the fair value of the asset under the assumption that the trade name would be amortized for tax purposes over a period of 15 years.

We estimated the useful life of the trade name to be indefinite. The useful life was based on several factors including the number of years the name has been in service, its popularity within the industry, and our intention to continue its use in the branding of products.

Pro Forma Results and Acquisition-related Costs

The consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 include the financial results of the above 2016, 2015 and 2014 acquisitions from the date of each acquisition. Pro forma financial results for the acquisitions completed in 2016, 2015 and 2014 have not been presented since these acquisitions both individually and in the aggregate were not material to our financial results.

Acquisition-related costs for the transactions described above were expensed as incurred and are included in merger and strategic initiatives expense in the Consolidated Statements of Income.