Nasdaq Inc. will buy Verafin, a software company that uses artificial intelligence to help banks detect money laundering and fraud, for $2.75 billion, the companies said Thursday.

If completed, the Verafin acquisition would be New York-based Nasdaq’s largest deal in more than a decade and its latest effort to diversify away from its core exchange business into technology. The deal is expected to close early next year, subject to regulatory approval and other conditions.

Verafin’s anticrime technology tools are used by more than 2,000 financial institutions in North America, according to a press release from the two companies. Many of them are smaller banks and credit unions. Founded in 2003, Verafin is based in St. John’s, Canada.

Nasdaq already offers software used by market operators around the world to detect market manipulation, and it recently launched a product to help banks investigate possible money laundering. By acquiring Verafin, Nasdaq is hoping to bring the firm’s technology to larger banks and a global client base.

The deal comes as regulators have stepped up efforts to fight money laundering. In 2019, authorities around the world handed out $8.1 billion in penalties for money laundering, nearly double the value of fines collected the previous year, according to an analysis by software provider Encompass.

“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,” Nasdaq Chief Executive Officer Adena Friedman said in a Nasdaq press release.

“Banks are facing more pressure to solve this problem with technology,” Friedman added. 

Nasdaq said it would finance the deal with debt and cash on hand. The company’s share price has risen more than 14% this year, fueled by a surge in trading activity in stocks and options, putting it in a stronger position to do deals.

Though best known for its flagship stock exchange, the home of big tech stocks like Apple Inc. and Facebook Inc., Nasdaq has shifted in recent years away from trading toward businesses with more stable revenue such as selling data and software.

Profit margins in the trading business are tight because of tough competition from other stock exchanges, and revenue depends on unpredictable fluctuations in trading volume. Nearly three-quarters of Nasdaq’s net revenue come from businesses other than trading.

Ms. Friedman has doubled down on Nasdaq’s shift to tech and data since she took over the CEO role in 2017, exiting some struggling trading ventures and pursuing deals like the $705 million acquisition of data provider eVestment in 2017.

If completed, the Verafin acquisition would be Nasdaq’s largest completed deal since its $3.7 billion merger with Nordic stock-market operator OMX AB, which closed in 2008.

News of the transaction comes two days after another major exchange deal. German exchange operator Deutsche Borse AG said Tuesday that it was buying an 80% stake in Institutional Shareholder Services Inc. for about $1.8 billion.

ISS, which is currently owned by private-equity firm Genstar Capital, is a so-called proxy adviser. Such firms advise institutional investors and other market participants on how to vote at annual shareholder meetings, giving them substantial influence in corporate-governance matters.

Source: Wall Street Journal

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