With most of its business done primarily in the United States, company will now turn to global market for growth
Back in 2003, Verafin was a small startup, a project spearheaded by Memorial University engineering graduates who saw an untapped market for protecting financial institutions from fraud and other forms of criminal activity.
On Thursday, that same company was generating headlines around the world. Nasdaq Inc., parent company of the NASDAQ stock exchange, is acquiring the Newfoundland and Labrador company in a US$2.75-billion cash deal. Brendan Brothers, a Verafin product specialist and co-founder, considers the deal a huge win for the province and an event that will inspire entrepreneurs.
"As an entrepreneur, you always start off with a grand vision and with grand plans — I don't think you can do it any other way," he said Thursday in an interview with The Telegram. "But today is a tremendous day not only for Verafin, but the province of Newfoundland and Labrador. It's going to be an inspiration to entrepreneurs within the province. I think it's a tremendous acknowledgement that we can build big things here."
From its humble beginnings at Memorial University's innovation hub the Genesis Centre, the company has grown rapidly. It now employs more than 600 people, most based at its headquarters in St. John's. The company also maintains an office in Toronto and has other employees spread across North America, where more than 2,000 financial institutions use Verafin's cloud-based platform to help detect, investigate and report money laundering and financial fraud.
Judging from what Nasdaq had to say during a conference call with investors and business analysts Thursday morning, Verafin's market reach will doubtlessly extend beyond North America in the years ahead.
Nasdaq Inc. has its own regulatory technology and anti-financial crime products. Nasdaq president and CEO Adena Friedman said Verafin has made a steady progression as a business, making inroads first with credit unions before serving mid-sized, tier one banks.
"They've done a really great job of addressing the mid-sized banks, and now they've been moving up into the tier two banks, and they're I would say relatively early on the journey in tier two, but they have a really good solution for them," Friedman said. "And that's where we've started to really intersect. Tier one and tier two banks are the banks we serve."
Freidman said with Verafin having established itself firmly in North America, Europe is the next market to hit.
"And that's where we come into play, because we do believe that we have a lot of cross-selling opportunities within our client base, and we can really move them into those clients and create a more joint offering over time that can address broader needs," she said. "That’s where we really bring synergistic value, is really accelerating their move up into the tier one and tier two banks and getting them to go to Europe.
“Two-thirds of the revenue in our surveillance business comes from outside the U.S., whereas all their revenue today comes from North America. We have a really great opportunity to take them into our bank clients across Europe."
To help pique the interest of the world's largest banks, Friedman confirmed Nasdaq intends to invest further in Verafin to advance their products in order to meet the needs of those clients.
"I have to tell you, we're super excited about being able to introduce them to our clients, because their solution is superb," she added. "It really is a best-in-class product."
Brothers confirmed there have been a number of potential suitors for Verafin over the years. What made Nasdaq stand out was how strongly its position matched up with Verafin and its own growth-focused business model.
"Nasdaq has a global brand. It has a global presence, and I think the shared purpose and shared values that we found with the leadership team at Nasdaq as we went through those conversations, I think we're very, very excited about what we can do together."
He said Nasdaq's work on trade surveillance and detecting market manipulation is very much in line with what Verafin does on the anti-financial crime front.
"It's that shared vision of trying to fight financial crime that we both have is what's going to be extremely powerful here," Brothers said.
Like Friedman, he expects this transaction will accelerate Verafin's growth. The company has gained approximately 100 employees over the last year and Brothers anticipates more hiring in 2021.
"Their commitment to us is not only that the headquarters and leadership stay here in St. John's, but they're also committing to growing an employee base here locally and significantly," Brothers said.
Nasdaq's interest in Verafin and Newfoundland and Labrador as a whole was evident in Thursday announcement. A news release said the company "sees great potential in the innovation ecosystem of St. John’s." It committed to a new US$1-million research and development fund for the Genesis Centre. Nasdaq also committed to grow MUN's scholarship program, work with the university's co-op programs and fund and supervise at least six Mitacs fellowships annually for Masters and PhD students.
Brothers said investment in local education will be important to Verafin's growth.
"This is an acknowledgement that we can build big things from a technology perspective in Newfoundland and Labrador," he said. "It's going to result in a significant creation of jobs within our business, but I think also, the investment within the university and the education system is going to further create an ecosystem within the province to be able to do better and bigger things."
The deal is expected to close in the first quarter of 2021.