Al Karim Somji, chief executive officer of Zafin Labs, in Vancouver, on Jan. 21, 2022. At the time, Zafin was paying US$32.7-million for FinancialCAD Corp., a provider of derivatives valuation software.DARRYL DYCK/The Globe and Mail
One of Europe’s largest private equity firms has struck one of the biggest takeover deals in Canadian technology in months, buying majority control of financial software company Zafin Labs America Inc.
Nordic Capital said Monday that it would buy a majority stake in Vancouver-based Zafin. Terms of the deal were not disclosed, nor was the exact size of the ownership stake Nordic was acquiring.
However, a source familiar with the sector said the agreement valued Zafin at more than US$500-million based on annual revenues believed to be between US$75-million and US$100-million. The Globe and Mail has agreed not to identify the source because they were not authorized to comment publicly on the deal.
Long-time Zafin investors Beedie Capital, Kayne Partners and Vistara Growth will sell their holdings in the company as part of the transaction. Beedie first invested in Zafin in 2012; Kayne invested in 2014, and Vistara in 2018.
Mohit Agnihotri, a partner with Nordic Capital Advisors responsible for the firm’s financial software practice, said in an interview from London that the investment represented “a comfortable majority” of Zafin. The money is coming from Nordic’s flagship €9-billion Nordic Capital XI investment fund, he said, which generally requires a minimum spend of US$300-million.
“This is a reasonably big-sized deal,” Mr. Agnihotri said. “It is not in the billions and it is not a US$300-million sort of thing either, though we can’t disclose the exact financials of the deal.”
Founded in 2002, Zafin has grown into a leading software-as-a-service (SaaS) provider with roughly 500 employees. Its platform helps banks modernize their technology offerings in order to remain competitive against the financial technology, or fintech, industry.
“If you look at the global banking technology landscape, the majority is legacy technology and there is a broad consensus that the technology that was put in place 40, 50 or 60 years ago is no longer fit for purpose,” Mr. Agnihotri said. “That is why you see banks getting their lunch eaten by the new, agile fintechs that are coming up.”
Upgrading those systems is extremely expensive and highly complex, he said, likening the process to replacing the engine of a plane while it is flying. What Zafin offers, Mr. Agnihotri said, is “a way to replace each part of the engine of that plane step by step without having to take the engine off completely.”
Zafin already works with several dozen financial institutions around the world, including Canada’s five major banks, Barclays PLC, ING Groep NV and Bank of America Corp.
CIBC CM-T used Zafin to automate pricing, billing and analytics for its business customers. That reduced IT expenses and costs to enact fee changes, identify revenue opportunities and ended manual billing errors, enabling CIBC to launch products much faster, a 2018 case study found.
Australia and New Zealand Banking Group Ltd. used Zafin to create its 10-minute mortgage approval offering, and Pittsburgh-based PNC Financial Services Group Inc. has used the platform extensively.
In early 2022, Zafin paid US$32.7-million for Surrey, B.C.-based FinancialCAD Corp., or Fincad, a provider of derivatives valuation software. Rather than integrate the Fincad platform into its own offerings, Zafin sold it to New York-based financial analytics provider Numerix LLC for an undisclosed sum in April, 2023.
Stockholm-based Nordic Capital has made 140 investments worth a combined €23-billion since its inception in 1989. Zafin represents the first-ever investment the firm has made in a Canadian technology company.
Mr. Agnihotri said Nordic first became aware of Zafin in 2022, with the more formal process that led to its investment having started roughly six to eight months ago. Nordic will keep the existing team in place “as this is a case where if it is not broken you don’t do anything,” he said, but the firm intends to focus on helping Zafin accelerate its growth internationally.
“There is massive potential for this business globally, in every region,” he said. “I think the question for us is how do we tap into that potential in a sustainable way, without losing focus.”