Nasdaq, Inc. (Nasdaq: NDAQ), a global technology company, and Verafin, an industry pioneer in anti-financial crime management solutions, today announced that they have entered into a definitive agreement for Nasdaq to acquire Verafin for US$2.75 billion in cash, subject to customary adjustments. The agreement will combine Verafin’s comprehensive suite of anti-financial crime management products with Nasdaq’s reach and established regulatory technology leadership to create a global SaaS leader in the fight against financial crime, a worldwide problem that demands innovative action.
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Based in St. John’s, Newfoundland and Labrador and founded in 2003, Verafin provides more than 2,000 financial institutions in North America a cloud-based platform to help detect, investigate, and report money laundering and financial fraud. Verafin’s products are powered by intelligent analytics and leverage machine learning, robust shared data insights and powerful visualization and investigation tools to increase detection accuracy and reduce costs for clients. Verafin emphasizes a holistic approach to eradicating financial crime and its platform supports a consortium of several of the largest global banks as they collaborate to detect financial crimes to support law enforcement investigations.
The acquisition strengthens Nasdaq’s existing regulatory technology and anti-financial crime solutions, which include its renowned Nasdaq Trade and Market Surveillance offering, its Buy-side Compliance product, as well as the Nasdaq Automated Investigator for anti-money laundering (AML). Verafin’s capabilities will be available to the global network of nearly 250 banks, exchanges, broker-dealers and buy-side organizations, and regulatory authorities that rely on Nasdaq’s technology to detect market manipulation and abuse today. Nasdaq believes that its deep relationships with the majority of leading Tier 1 and Tier 2 banks globally will accelerate Verafin’s strategy of displacing legacy providers and manual processes with its cloud-based, state-of-the-art, market-proven solution.
“At the core of Nasdaq’s mission, we champion fairness and integrity in the markets that we build and in the broader financial ecosystem in which we operate, and combatting financial crime is central to achieving our goals. Verafin’s innovative fraud and AML detection platform, combined with Nasdaq’s leading trade and market surveillance solution, will empower Nasdaq to play an increasingly important role in building stronger economies around the world,” said Adena Friedman, President and Chief Executive Officer, Nasdaq. “The intelligent technology solutions Verafin has created are second-to-none, and that is evident in the company’s extraordinary growth and stellar client retention. Together with Verafin’s founders and employees, we look forward to building Nasdaq into a global leader in anti-financial crime management solutions. Additionally, we are committed to supporting innovation and growth in St. John’s and Newfoundland and Labrador. We believe that Verafin will not only complement and grow our existing presence in Canada, but also represents a potential catalyst for further investment opportunities in the province and the country.”
Friedman continued, “In addition to Verafin’s significant contribution to Nasdaq’s strategic ambitions, the acquisition also furthers our goal to be a premier provider of cloud-based SaaS solutions to the global capital markets and beyond. This combination meaningfully accelerates the evolution of our business mix toward highly scalable, subscription revenue.”
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Anti-financial crime technology represents a large and growing sector with structural and regulatory tailwinds. Financial institutions face significant challenges in detecting and preventing financial crime, and therefore invest significant capital and resources in combatting an ever-increasing threat to the integrity of the global financial system. Up to US$2 trillion in laundered money flows through the financial system annually according to the United Nations, and criminals continue to find sophisticated methods for moving funds undetected. Automation and vendor solutions, a US$13 billion market according to Oliver Wyman, have become increasingly attractive solutions for financial institutions.
“This investment by Nasdaq, a global leader in financial technology, is a major vote of confidence and a significant win for the Province of Newfoundland and Labrador’s technology and innovation sector. Nasdaq’s clear commitments to the Province will help foster prosperity and opportunity throughout the community as we continue to grow our business,” said Jamie King, Chief Executive Officer, Verafin. “Since we began discussions with Nasdaq, we felt their DNA strongly mirrored our own core values: innovation, teamwork, entrepreneurship, and a commitment to continued growth and development. Together with Nasdaq, we will be a clear leader in expanding the fight against illicit finance by delivering our capabilities to a global client base from our headquarters in St. John’s.”
Nasdaq’s Investment in St. John’s, Newfoundland and Labrador and Canada
Nasdaq is committed to growing Verafin’s business and creating opportunities for their employees. Nasdaq’s investment will help Verafin expand its position as an economic and technology leader from its base in St. John’s and within the province of Newfoundland and Labrador.
To this end, Nasdaq will make the following commitments:
- Verafin’s headquarters will proudly remain in St. John’s and its executive leadership team will remain in place and continue to lead the company’s growth.
- Nasdaq highly values the skills and expertise of Verafin employees and will invest to both maintain and increase local employment levels to fuel Verafin’s growth.
- In order to foster the next generation of talent in the province and help support Verafin’s growing employment base, Nasdaq will work closely with Memorial University to grow its scholarship program at the University, enhance its co-op programs, and fund and supervise at least six Mitacs fellowships annually for Masters and PhD students.
- Nasdaq sees great potential in the innovation ecosystem of St. John’s and will increase investment in Verafin’s research and development. This will include an investment in a new US$1 million R&D partnership project with The Genesis Centre, Newfoundland and Labrador’s pre-eminent innovation hub.
- In addition, Nasdaq admires the extensive charitable and community support that Verafin has provided to date and will increase Verafin’s level of charitable giving as the company continues to grow.
Financial Impact and Value Creation
The transaction meets all of Nasdaq’s acquisition investment criteria:
- Verafin is a strong strategic and cultural fit, accelerating Nasdaq’s evolution into a technology, analytics and infrastructure provider. The transaction is expected to increase revenue contribution from the highest-growth Market Technology and Investment Intelligence segment to 47% (from 44%) of total Nasdaq net revenue2 pro forma for the third quarter of 2020.
- It is expected to enhance Nasdaq’s performance and valuation potential, in particular by accelerating organic revenue3 growth outlook within its Solutions Segments to 6-9% (from 5-7% previously).
- The acquisition of Verafin is expected to deliver EPS accretion beginning in 2022 and meet Nasdaq’s ROIC, or return on invested capital, and IRR objectives.
Verafin has grown at a compound annual revenue growth rate of approximately 30% over the last three years. Verafin expects to deliver in excess of US$140 million4 in revenue in 2021, representing an implied multiple of approximately 19.5x revenue, in line with high-growth SaaS companies.
Verafin’s results will be reported within Nasdaq’s Market Technology segment. As a result, Nasdaq is raising its Market Technology segment’s medium-term organic revenue annualized growth outlook to 13-16% (from 8-11% previously). The acquisition of Verafin is also expected to accelerate Market Technology’s projected timing of meeting the “rule of 40” 5 threshold to 2023, two years ahead of Market Technology’s 2025 target.
Financing and Approvals
Nasdaq intends to finance the transaction with a combination of US$2.5 billion of debt and cash on hand and expects debt / non-GAAP EBITDA leverage to be approximately 3.9x pro forma for the transaction. Nasdaq intends to pursue its existing capital deployment plan, including dividend payments and share repurchases, consistent with past practice, and expects to de-lever over time to return to a leverage ratio consistent with its current investment grade ratings.
The transaction is subject to regulatory approvals and other customary closing conditions. Spectrum Equity, a leading growth equity investor based in Boston and San Francisco, and Information Venture Partners, a leading FinTech-focused venture capital firm based in Toronto, both significant investors in Verafin, have agreed to sell their stake as part of this transaction. It is expected to close in the first quarter of 2021.
Advisors
Evercore served as lead financial advisor to Nasdaq, along with J.P. Morgan Securities LLC. Nasdaq also received financial advice from BofA Securities, Goldman Sachs & Co. LLC, Morgan Stanley and TD Securities. Wachtell, Lipton, Rosen & Katz and Blake, Cassels & Graydon LLP served as legal advisors to Nasdaq.
William Blair & Company acted as financial advisor to Verafin in connection with the transaction. Osler, Hoskin & Harcourt LLP acted as Verafin’s legal advisor.
Conference Call / Webcast
On Thursday, November 19, 2020 at 8:00 a.m. ET, Nasdaq will host a webcast presentation to discuss the transaction. Links to the webcast and accompanying documents will be available at the company’s Investor Relations website, http://ir.nasdaq.com/investor-relations.
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1 ARR for a given period is the annualized revenue of active contracts. ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by customers.
2 Represents revenues less transaction-based expenses.
3 Refer to the non-GAAP information section of this release for a discussion of this and other non-GAAP measures.
4 Excludes the impact of purchase accounting write-down on deferred revenue.
5 Represents non-GAAP EBITDA margin percentage plus annual growth rate.
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