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Nasdaq Inc. is buying Newfoundland and Labrador-based fraud detection company Verafin for US$2.75-billion in a deal that will see the company’s head office remain in St. John’s while expanding the reach of its software to banks around the world.
Verafin sells cloud-based fraud detection and anti-money laundering software to financial institutions across North America, with a focus on small and mid-sized banks and credit unions. The company was founded in 2003 by a trio of entrepreneurs – Jamie King, Raymond Pretty and Brendan Brothers – and now serves more than 2,000 customers in Canada and the United States.
Verafin will become a key part of Nasdaq’s fraud detection infrastructure, and the U.S. exchange operator intends to introduce Verafin technology to larger Tier 1 and Tier 2 banks as well as to banking customers across Europe. It said that Verafin’s products will be available to nearly 250 banks, exchanges, brokers and regulators that currently use Nasdaq services.
“Financial crime, including money laundering, is among the biggest and most difficult challenges that banks face around the world,” Nasdaq chief executive Adena Friedman said on an investor call Thursday morning.
“Regulators are being more demanding of banks, brokerages, fintechs and other financial intermediaries as a frontline defence against criminals using the financial system to fund their illicit activities. As a result, financial firms are faced with an ever increasing investment in people and technology to address this dynamic problem,” she said.
Nasdaq is financing the deal with a combination of debt and cash on hand. The high purchase price, at 19.5 times Verafin’s expected 2021 revenue, reflects the company’s rapid expansion, with a compound annual revenue growth of approximately 30 per cent over the past three years. Nasdaq expects Verafin to deliver more than US$140-million in revenue in 2021.
Nasdaq has committed to keeping Verafin’s headquarters in St. John’s – a major win for a city and a province struggling with high unemployment and low oil prices.
In a news release, Nasdaq said that it will work 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.” It will also invest US$1-million in an R&D partnership with the Genesis Centre, a local innovation hub.
Nasdaq’s financial advisors included Evercore, BofA Securities, Goldman Sachs & Co. LLC, Morgan Stanley and TD Securities, while it received legal advice from Wachtell, Lipton, Rosen & Katz and Blake, Cassels & Graydon LLP. Verafin was advised by William Blair & Company and Osler, Hoskin & Harcourt LLP.
The deal is expected to close in the first quarter of 2021.
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