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Acquisition and Divestiture
 3 Months Ended
Mar. 31, 2022
Business Combination and Asset Acquisition [Abstract]  
Acquisition and Divestiture ACQUISITION AND DIVESTITURE
We completed the following divestiture and acquisition in 2021. Financial results of each transaction are included in our condensed consolidated financial statements from the date of each acquisition.
2021 Divestiture
In June 2021, we sold our U.S. Fixed Income business, which was part of our FICC business within our Market Services segment, to Tradeweb Markets Inc. We recognized a pre-tax gain on the sale of $84 million, net of disposal costs. The pre-tax gain was included in net gain on divestiture of businesses in the Condensed Consolidated Statements of Income.
In connection with this sale, we issued approximately 6.2 million shares of Nasdaq common stock. Nasdaq used the proceeds from the sale, available tax benefits and working and clearing capital of this business, as well as other sources of cash, to repurchase shares of Nasdaq common stock to reduce the impact on earnings per share dilution from the sale.
To facilitate these repurchases, in June 2021, the board of directors authorized an increase to the share repurchase program. See “Share Repurchase Program,” of Note 11, “Nasdaq Stockholders' Equity,” for further discussion.
2021 Acquisition
Acquisition of Verafin
In February 2021, we completed the acquisition of Verafin, a SaaS technology provider of anti-financial crime management solutions that provides a cloud-based platform to help detect, investigate, and report money laundering and fraud, for an aggregate purchase price of $2.75 billion, subject to certain adjustments. The $2.75 billion purchase price includes a cash payment of $102 million, reflected in cash from operating activities in our Condensed Consolidated Statements of Cash Flows, the release of which is subject to certain employment-related conditions over three years following the closing of the transaction. This payment was recorded as a prepaid expense and is recorded in other current and non-current assets in our Condensed Consolidated Balance Sheets and will be amortized to merger and strategic initiatives expense on a straight-line basis over a three-year period. Verafin is part of our Market Technology segment.
The amounts in the table below represent the final allocation of the purchase price. The allocation of the purchase price was subject to revision during the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments to the provisional values, which may include tax and other estimates, during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. In 2021, we recorded a measurement period adjustment of $9 million. This adjustment resulted in an increase to both total net liabilities acquired and goodwill. This adjustment did not result in an impact to our Condensed Consolidated Statements of Income. The allocation of the purchase price for Verafin was finalized in the first quarter of 2022.
(in millions)
Goodwill$1,882 
Acquired Intangible Assets815 
Total Net Liabilities Acquired(46)
Purchase Consideration$2,651 
Intangible Assets
The following table presents the details of acquired intangible assets for Verafin at the date of acquisition. Acquired intangible assets with finite lives are amortized using the straight-line method.
Customer
Relationships
Technology
Trade
Name
Total Acquired Intangible Assets
Intangible asset value (in millions)$532 $246 $37 $815 
Discount rate used7.5 %7.5 %7.5 %
Estimated average useful life22 years7 years20 years
Customer Relationships
Customer relationships represent the non-contractual and contractual relationships with customers.
Methodology
Customer relationships were valued using the income approach, specifically an excess earnings method. The excess earnings method examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return that is attributable to the intangible asset being valued.
Discount Rate
The discount rate used reflects the amount of risk associated with the hypothetical cash flows for the customer relationships relative to the overall business. In developing a discount rate for the customer relationships, we estimated a weighted-average cost of capital for the overall business and we utilized this rate as an input when discounting the cash flows. The resulting discounted cash flows were then tax-effected at the applicable statutory rate.
For our acquisition of Verafin, a discounted tax amortization benefit was added to the fair value of the assets under the assumption that the customer relationships would be amortized for tax purposes over a period of 20 years.
Estimated Useful Life
We estimate the useful life based on the historical behavior of the customers and a parallel analysis of the customers using the excess earnings method.
Technology
As part of our acquisition of Verafin, we acquired developed technology.
Methodology
The developed technology was valued using the income approach, specifically the relief-from-royalty method, or RFRM. The RFRM is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset. The royalty rate is applied to the projected revenue over the expected remaining life of the intangible asset to estimate royalty savings. The net after-tax royalty savings are calculated for each year in the remaining economic life of the technology and discounted to present value.
Discount Rate
The discount rates used reflect the amount of risk associated with the hypothetical cash flows for the developed technology relative to the overall business as discussed above in “Customer Relationships.”
Estimated Useful Life
We have estimated the useful life of the Verafin technology to be 7 years.
Trade Name
As part of our acquisition of Verafin, we acquired a trade name. The trade name is recognized in the industry and carries a reputation for quality. As such, the reputation and positive recognition embodied in the trade name is a valuable asset to Nasdaq.
Methodology
The Verafin trade name was valued using the income approach, specifically the RFRM as discussed above in “Technology.”
Discount Rate
The discount rate used reflects the amount of risk associated with the hypothetical cash flows for the trade name relative to the overall business as discussed above in “Customer Relationships.”
Estimated Useful Life
We have estimated the useful life of the Verafin trade name to be 20 years and our intention is to continue to use it in the branding of products.
Pro Forma Results and Acquisition-Related Costs
The condensed consolidated financial statements for the three months ended March 31, 2022 and 2021 include the financial results of the above acquisition from the date of the acquisition. Pro forma financial results have not been presented since this acquisition was not material to our financial results.
Acquisition-related costs for the transactions described above
were expensed as incurred and are included in merger and strategic initiatives expense in the Condensed Consolidated Statements of Income.