Nasdaq Inc. has inked an agreement to buy Verafin for $2.75 billion in cash, in a move to strengthen the stock exchange operator’s anti-money laundering and fraud software tools.
With the deal, Nasdaq (NDAQ) seeks to combine Verafin’s anti-financial crime management products with its regulatory technology to create a global SaaS leader in the fight against financial crime, a global problem that demands action, the exchange operator said.
Founded in 2003, Verafin provides more than 2,000 financial institutions in North America with a cloud-based platform to help detect, investigate, and report money laundering and financial fraud. Verafin’s products deploy intelligent analytics, shared data insights and visualization and investigation tools to increase detection accuracy and cut costs for clients.
As part of the deal, Verafin’s cloud-based software will be made available to the global network of nearly 250 banks, exchanges, broker-dealers buy-side organizations, and regulatory authorities that rely on Nasdaq’s technology to detect market manipulation and abuse.
“Verafin’s innovative fraud and AML [anti-money laundering] 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 Nasdaq CEO Adena Friedman. “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. 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.”
“This combination meaningfully accelerates the evolution of our business mix toward highly scalable, subscription revenue,” Friedman added.
Nasdaq said that it will finance the transaction with a combination of $2.5 billion of debt and cash on hand and expects debt/non-GAAP EBITDA leverage to be approximately 3.9x pro forma. The deal, which is expected to close in the first quarter of 2021, is projected to add to Nasdaq’s earnings per share beginning in 2022.
Commenting on the acquisition, Oppenheimer analyst Owen Lau reiterated a Buy rating on the stock with a $149 price target (18% upside potential), saying that Verifan not only fits nicely with NDAQ’s current anti-crime business, but it will also likely be synergistic given relationships NDAQ has with global banks.
“Given Nasdaq currently has a strong presence in trade surveillance across Europe and APAC, we believe the more US-focused Verafin presents a good complement to Nasdaq’s existing capabilities, and opens cross-selling opportunities both on product and geographical levels,” Lau wrote in a note to investors. “In our view, it is more of a strategic move than a cost-cutting initiative, and this combined solution offers a full spectrum of services across surveillance, AML and fraud globally.”
“With an increased growth profile and more recurring revenue, NDAQ remains the top-pick in our Exchange coverage,” Lau summed up. (See NDAQ stock analysis on TipRanks)
The rest of the Street has a cautiously optimistic outlook on the stock with a Moderate Buy analyst consensus. With shares up 18% so far this year, the average price target of $145.28, implies another 15% upside potential lies ahead over the coming year.