Al Karim Somji, CEO of Zafin Labs, Vancouver, January 21, 2022. At the time, Zafin paid US$32.7 million to FinancialCAD Corp., a provider of derivatives valuation software.Darryl Dick/Globe and Mail
One of Europe’s largest private equity firms has completed the largest acquisition deal in the Canadian technology sector in recent months, acquiring a majority stake in financial software company Zafin Labs America.
Nordic Capital announced Monday that it will acquire a majority stake in Vancouver-based Zafin Inc. Terms of the deal were not disclosed, nor was the exact size of the stake Nordic is acquiring.
But the deal values Zafin at more than $500 million, based on annual revenue thought to be between $75 million and $100 million, according to people familiar with the industry. The Globe and Mail agreed not to identify the sources because they were not authorized to comment publicly on the deal.
Longtime Zafin investors Beedie Capital, Kane Partners and Vistara Growth will sell their stakes in the company as part of the deal. Beedie first invested in Zafin in 2012. Mr. Kane invested in 2014 and Mr. Vistara in 2018.
Mohit Agnihotri, a partner at Nordic Capital Advisors, which runs the firm’s financial software practice, said in an interview from London that the investment represents a “significant majority” of Mr. Zafin. He said the money comes from Nordic’s flagship investment fund, the 9 billion euro Nordic Capital XI Investment Fund, which typically requires a minimum outlay of 300 million U.S. dollars.
“This is a fairly large deal,” Agnihotri said. “I cannot reveal the exact financials of the transaction, but it is not in the billions of dollars, nor is it something like US$300 million.”
Founded in 2002, Zafin has grown to become a leading software-as-a-service (SaaS) provider with approximately 500 employees. Its platform helps banks modernize their technology offerings to remain competitive with the financial technology (fintech) industry.
“If you look at the state of banking technology globally, there is a broad consensus that it is largely legacy technology and that technology that was introduced 40, 50 or 60 years ago is no longer fit for purpose,” Agnihotri said. Stated. “This is why banks are losing their lunch to the new nimble fintechs that are coming up.”
Upgrading these systems is very expensive and very complex, he said, likening the process to replacing the engine of an airplane in flight. Agnihotri said Zafin offers “a step-by-step method for replacing parts of an airplane’s engine without having to completely remove the engine.”
Zafin already works with dozens of financial institutions around the world, including Canada’s five largest banks, Barclays PLC, ING Groep NV, and Bank of America Corp.
CIBC CM-T used Zafin to automate pricing, billing, and analytics for enterprise customers. In 2018, this reduced IT expenses and costs for implementing rate changes, identified revenue opportunities, eliminated manual billing errors, and enabled CIBC to release products faster. revealed by research.
Australia and New Zealand Banking Group Ltd. used Zafin to create a 10-minute mortgage approval service, and Pittsburgh-based PNC Financial Services Group Inc. uses the platform extensively.
In early 2022, Mr. Zaffin paid US$32.7 million for FinancialCAD Corp. (Fincad), a provider of derivatives valuation software based in Surrey, British Columbia. Rather than integrate the Fincad platform into its own products, Zafin sold it to New York-based financial analytics provider Numerix LLC in April 2023 for an undisclosed amount.
Stockholm-based Nordic Capital has made 140 investments totaling €23 billion since its founding in 1989. Zafin marks the firm’s first investment in a Canadian technology company.
Agnihotri said Nordic first became aware of Zafin’s existence in 2022, and the more formal process leading to the investment began about six to eight months ago. Nordic will retain its existing team “because this is a case where you can’t do anything without a team,” he said, but the company will focus on helping Zafin accelerate its international growth.
“This business has great potential in any region of the world,” he said. “I think the question for us is how to exploit that potential in a sustainable way without losing focus.”