Skip to Content
Stock Analyst Update

Nasdaq Boosts Growth Profile With Software Acquisition

Nasdaq recently announced the acquisition of Verafin, an anti-financial crime solutions provider, which will speed up its shift to more software-as-a-service revenue.

Mentioned:

Narrow-moat Nasdaq (NDAQ)  is enhancing its growth profile and speeding up its shift to more software-as-a-service (SaaS) revenue with its recently announced acquisition of Verafin, an anti-financial crime solutions provider, for $2.75 billion. Nasdaq is paying a decent price for this fast-growing company. On a pro forma basis, Verafin would have increased Nasdaq’s market technology and investment intelligence segments’ revenue contribution in the third quarter to 47% of total revenue from 45%, which implies that Verafin’s quarterly revenue is probably in the range of $15 million to $30 million, which is relatively small compared with Nasdaq’s third-quarter net revenue of $715 million. That said, over the past three years, Verafin has grown revenue at around a 30% compound annual growth rate, and Nasdaq expects Verafin’s 2021 annual revenue to be in excess of $140 million. We don’t anticipate making a material change to our $95 fair value estimate for Nasdaq.

Nasdaq is expecting some synergy with Verafin. Currently Verafin primarily serves smaller banks with money laundering and fraud in North America. Nasdaq already has trade surveillance services and relationships with large banks and international banks. Nasdaq may be able to use its existing relationships to offer Verafin’s services to a wider customer base while building a more comprehensive suite of compliance services.

The acquisition will be partially funded by debt, and Nasdaq expects its debt/EBITDA ratio to increase to 3.9 times, compared with 2.6 times in 2019. The company plans to bring down its financial leverage over time, but this means it will also likely reduce its share repurchase activity.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Michael Wong does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.