Mostly… fixed income and cross product eTrading

August 15, 2011

Sungard: GLTrade/Brass/Front Arena – what now?

Filed under: etrading, FIX, Nuts and Bolts, OMS / EMS, STP — Tags: , , , , , , , — John Greenan @ 2:37 pm

Bid for Fidessa?  About £588 million market cap at £16/share. Throw on a premium – say 20% to take it to about £700 million.

Why?

A double or quits bet on the front office trading systems market.  The GL acquisition cannot be going well; why not scoop up the main competition?  Price earning of about 20.  For year ended 31st December 2010 Fidessa made a £40 million profit. That’s a decent return on equity in a downturn and beats the hell out of a bank account.

Massive synergies possible – basically you just shut down all of GL Trade and Brass and most of Front Arena.  Keep the Clearvision product offering. Integration costs will be high – closing down the Tunisia and Serbia development sites and pretty much all of the Paris based staff.

Do I expect Sungard to do it? 20% chance at best. But if you cannot beat ’em, buy ’em! At the moment Fidessa are eating their lunch on a drip-by-drip basis.  This would be a transformational acqusition in the true sense, since it would transform Sungard from a dying sclerotic business to being Fidessa+a few bits left from the Sungard Trading world.  Just have to make sure that the staff retention packages are enough to keep the Fidessa “magic/inner circle” onboard but not to much to let them get lazy.

Disclosure: I know people at both Fidessa and Sungard, I have not discussed this article with them and have no information other than market knowledge.

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3 Comments »

  1. This post has stirred up a reasonable amount of interest from folks within both Sungard and Fidessa – judging by some of the emails I have received, linkedin profile viewers and conversations I have had…

    So – a few further points:
    1. It was put to me that the Sungard business model is unlikely to be supportive of the Fidessa business model.

    Let me clarify this. Fidessa business model is one where a “magic circle” of senior management interact extensively with the market both formally and informally. White papers are prepared and discussed and the grand plan is thrashed out. Then there is remorseless execution. There is also client sponsored development. This is not perfect – the time to market can be slow as there is an almost Japanese approach to internal consensus building. But you cannot argue with the fact that from pretty humble roots the firm has generated an impressive market capitalisation and healthy profits.

    Sungard business model is one where the firm essentially outsources R&D and product development. Sungard buy firms with an established recurrent revenue stream and then apply a cost control structure. So Sungard buy firm X and then reduce R&D and non-billable professional services. This model can have a great deal of longevity in a business line where the cost of change is massive and the time to change is measured in years not months. Does not really fit into a business where new exchanges are appearing all the time and business requirements change quickly.

    The issue is that these two cultures are not directly compatible – the only way to make the transaction work is to hold Fidessa at arms length and not force the Sungard model onto Fidessa. Attempting that would lead to one inevitable conclusion – the magic circle work through their retention clauses, relax through the non-compete period and then in an office in Guildford, Farnham or Woking they build “Fidessa 2”.

    Sungard as firm will already know this and would have to be very careful about how they approached this transaction

    2. The price and shareholder structure
    Look at the number of shares held by the magic circle. Look at the number of shares in issue and ADV. There are about 36 million shares in issue. According to the 2010 annual report the six member of the board hold about 1.2 million shares – about 3%. The large shareholders are:
    Aegon 7.8%
    Blackrock, Inc. 6.2%
    Prudential 5.7%
    Lindsell Train 5.3%
    Ameriprise Financial 5.1%
    Lloyds Banking Group 5.0%
    Old Mutual Asset Managers 4.9%
    Standard Life Investments 4.8%
    L&G 3.9%
    DA Taylor 3.2%

    Add up the institutional holdings listed above and it’s just above 50%.

    So – who owns the rest? I started to dig though the RNS announcements and so on but I don’t have the time to figure it all out. I expect that of the remaining equity a fair chunk is held by employees, employee benefits trusts and friends and family.

    Notwithstanding these caveats – I believe this deal could be done. Again – I am an outsider to both firms and I am in only in possession of market information – I have no non-market information.

    Comment by johngreenan — August 23, 2011 @ 8:42 am

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    Pingback by Fidessa vs Sungard…the endgame begins? « Mostly… fixed income and cross product eTrading — October 14, 2011 @ 11:30 am

  3. Hi John, I’m currently doing some research into trading platforms and I was wondering if you would be willing to share your expertise regarding the market landscape and potential changes in the future. Please let me know.

    Comment by Andrew — April 3, 2013 @ 6:49 pm


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