Data analytics company Verisk Analytics (VRSK) has announced an agreementto acquire G2 Web Services for $112 million in an all cash deal.
G2 has developed technologies that assist payment processors in determining merchant risk for prospective and existing merchants. The deal promises to combine G2’s unique data sets with Verisk’s Argus unit to provide financial institutions with improved fraud, bad-actor detection and compliance requirements.
Target Company
Bellevue, Washington-based G2 was founded in 2004 to create merchant risk management technologies for due diligence, ongoing compliance, and fraud protection purposes.
Management is headed by Allison Guidette, who has been with the company since 2014 and previously held senior positions at Thomson Reuters and Merrill Corporation.
Below is a brief demo video about G2’s approach to KYC processes for commercial banks:
Little is known about G2’s investment history, other than a seed financing round was disclosed in 2011 from investor Primus Capital.
Acquisition Terms and Rationale
Verisk said it would pay $112 million in cash to G2’s stockholders, and that the deal is expected to close in 3Q 2017. As of Verisk’s March 31, 2017 10-Q, the company had $155 million in cash and equivalents and total liabilities of $3.36 billion. It’s operating cash flow for 1Q 2017 totaled $318 million, even after repaying $100 million of short-term debt.
Verisk will presumably take on debt to close the current transaction, although management did not provide any details on how it intends to pay for G2. Upon closing, G2 will be integrated into Verisk’s Argus business so that, as G2’s CEO Allison Guidette stated,
By joining with Argus, we will take our proprietary data assets, powerful technology, and deep domain expertise to the next level in helping clients fight fraud, transaction laundering, and reputational risk within the global payments and e-commerce ecosystem. Together we will expand our capabilities to map bad-actor networks, predict payments risk, and provide clients with the best opportunity to reduce losses and fines due tomerchant and business fraud and compliance violations. [Italics mine]
So, the key for the new combination is to integrate G2’s unique data sets with Argus’ risk forecasting and regulatory platforms to help financial institutions better avoid payment fraud and bad-actors via the KYC requirements as well as remain in regulatory compliance throughout the process.
The rise of fraud through the global financial system represents a threat to the security and ongoing business operations of financial firms, as this 2015 Global Fraud Report by Kroll described. Risks have only increased in the few years since that report.
The 2015 report chart below shows the numerous categories of fraud and the percentage of 
companies affected or vulnerable, and the numbers have probably risen since then.
(Source: Kroll Global Fraud Report 2015)
The acquisition promises to bolster Verisk’s Argus unit’s capabilities to use unique data sets to help combat financial system fraud.As data becomes ever more important to the integrity of the financial system, the deal makes sense as Verisk continues on its busy acquisition pace.
Source: Seekingalpa.com
