Focus on M&A – Financial providers embrace consolidation to protect profits

If the financial industry is experiencing a consolidation trend with few, stronger players emerging in each niche, the same phenomenon is even stronger among financial services providers.

In a market in which the key to survival is technological innovation and in which new global regulation is imposing substantial compliance investments, an increasing number of services and product providers are joining forces to protect their profitability.

Temenos Group, a Swiss provider of banking software, announced last week an agreement to purchase edge IPK, a provider of user experience platform software to the financial services industry.

Edge IPK, headquartered in the UK and with operations in the US and India, provides financial institutions with the ability to launch and maintain consistent user experience across multiple channels products and geographies.

According to the company, the acquisition will enable Temenos to compete much more effectively in the financial services front office application market, which is estimated to be approximately the same size as the core banking market.

Following the deal, Temenos will be able to offer a common UI across all of its products, a much enhanced user experience for direct customer channels as well as additional functionality, such as online customer acquisition.

edgeConnect, which reports Deutsche Bank, ABN Amro, Zurich and Allianz among its clients, includes a runtime and integrated development environment for the creation and management of multi-channel business applications, built once and deployed many times across different channels and devices – internet, mobile, tablet, branch, call centre.

Another key feature is the capability for web designers to design and test user experience pages, forms and workflows, independently from developers or architects greatly speeding up time to market.

The consolidation trend is affecting several countries and markets.

Electronic trading firm and market maker Virtu Financial has just announced the acquisition of Dutch ETF market maker Nyenburgh, known for its ETF market making activities across Europe.

Nyenburgh is a proprietary trading firm, with offices in Amsterdam, Singapore and Tallinn. It operates a so called low latency system, and is regulated by the Netherlands Authority for the Financial Markets.

Looking elsewhere, at the beginning of September the Intercontinental Exchange acquired New York-based options pricing and risk management provider WhenTech, which will operate as a wholly-owned subsidiary of the exchange.

The acquisition follows a partnership that began in May of 2010 with ICE’s YellowJacket subsidiary providing WhenTech customers with pricing on option quotes disseminated over YellowJacket’s instant messaging platform, now known as ICE Chat.

SS&C Technologies also recently made a deal to acquire GlobeOp Financial Services, for about $885m.
Now rebranded, SS&C GlobeOp is a top three fund administrator which provides to institutional clients products and services under a public, independent, single platform.

Back in July, the integration between Thomson Reuters and electronic foreign exchange platform FX Alliance was also of relevant size.

Thomson Reuters acquired FXAlliance for $625m to expand its bank-focused currency trading business to fund managers and corporates and the deal was expected to be giving a hedge to the FX platform against it competitors, mainly Hotspot FX and State Street Corp, competing in an increasingly competitive space.

And according to RBC analyst Drew McReynolds, the pace of acquisitions is likely to accelerate over the next few years as Thomson Reuters could have not finished its shopping, and other providers could be on the hunt for interesting deals to consolidate their market position.

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