QUICK TAKE

This purchase is kind of a big deal

What is the news?

Vancouver-based Zafin Labs America sold a majority stake of itself to Nordic Capital for a rumored $500m+ US.

Who is Zafin?

Zafin provides support to traditional banking institutions to modernize their services, enabling them to compete more effectively with burgeoning fintech companies.

Operating as a Software-as-a-Service (SaaS) business, Zafin's revenues are estimated to range between USD 75 million and USD 100 million. The company boasts a workforce of about 500 employees.

Who is Nordic Capital and why did they invest in Zafin?

Nordic Capital is a renowned private equity firm based in Europe. They are financing this investment from their substantial 9 billion Euro fund. Global legacy financial institutions often face challenges in modernizing their systems, which makes them reliant on third-party providers to maintain competitiveness. Nordic Capital's investment in Zafin indicates its confidence in the potential for future international revenue growth.

How did the deal come together?

Nordic first became aware of Zafin in 2022 and took six to eight months to run a diligence/negotiation process before investing.

Who sold to Nordic Capital?

The stake previously held by Beedie Capital - the financing division of building developer Beedie, along with private equity firms Kayner Partners and Vistara Growth, was sold to Nordic Capital. The existing management team will continue their roles and reinvest in the company.

Takeaway for the community?

The nuanced aspect of raising funds from venture capitalists or private equity firms is their limited holding period. This means that successful companies, which can grow over decades, may need to facilitate exits for these investors while also finding ways to participate in future profit increases.

As public markets become less accessible for IPOs, it's becoming more common to see private equity firms acquiring majority stakes in companies, while allowing founders to remain invested.

In terms of technology, legacy systems seldom become obsolete or undergo significant upgrades. Large enterprises often hesitate to replace them entirely due to the risks involved. This hesitation opens the door for new players to assist these large companies in building upon their existing infrastructure to compete with startups.

Although this might not seem like an exciting area to start a company, it can prove to be highly profitable.

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