The news that Bottomline Technologies has acquired Sterci and Simplex for a combined total of $109m in order to boost its financial messaging technology capabilities demonstrates the strength of the consolidation trend in this sector at present. Neil Ainger talked to Bottomline’s director of business development, Marcus Hughes, about what it will mean for customers in the payments, treasury, securities, reconciliation and other transactional and financial messaging-based fields served by the combined entity.
Bottomline Technologies has paid $104m to acquire the Swiss-based Sterci financial messaging and technology company, with a separate $5m agreement to buy the 49% of the London-based Simplex firm that Sterci does not already own, expected to close this month.
“Both Sterci and Simplex have good customer bases that align well with our business,” explained Marcus Hughes, Bottomline’s director of business development, in an interview with bobsguide about the acquisition, where he declined to discuss the profit and loss (P+L) figures for the privately owned technology companies. “The deal is about extending Bottomline’s geographical reach, breaking into new French-speaking continental European and other markets, and improving the products, support and breadth of the company. The recurring transaction-based revenues of Simplex are very very attractive to us, as are Sterci’s large on-going processing licenses.”
The combined entity will serve more than 530 global corporations, banks, payment channel partners and other institutions in key financial hubs such as Geneva, Frankfurt, Paris, Singapore, New York, London and Toronto.
“Crucially, the acquisition of Sterci (and Simpelx with it) moves Bottomline into the corporate actions processing, data management and reconciliation arenas where the two companies we are buying are strong, and where growth can be expected due to the changing regulatory and market environment,” adds Hughes. “Sterci also has a SWIFTNet Funds certificate [something Bottomline doesn’t -Ed.] so Bottomline can expect to grow a lot in the asset management / servicing arena with more fund management and transfer agents joining our processing platforms. The non-bank financial institution (NBFI) customer base of Sterci is expected to grow considerably as new regulations come into force and this was another key driver for the acquisition.”
The post-crash moves towards centralised repositories, intended to make it easier to unwind another Lehman Brothers-style collapse, and towards more transparency and effectively ‘on exchange’ clearing for over-the-counter (OTC) derivatives trades - enshrined under the US Dodd-Frank and European Market Infrastructure Regulation (EMIR) - all mean that more financial messaging and reporting volume business can be expected in future. These regulatory and market-based changes, emanating from the post-crash Pittsburgh G20 meeting, were no doubt factored into Bottomline’s decision to buy Sterci as the firm is traditionally very strong in the market data messaging and reconciliation fields. The technologically advanced GT match platform from Simplex was most likely a factor too.
SWIFT Messaging and SSB Capabilities Enhanced
Sterci purchased a 51% controlling stake in Simplex in 2011 and the pair use the SWIFT global messaging network on behalf of over 350 customers across 20 different countries. All of this will now be at the command of the US-headquartered Bottomline Technologies after this latest merger and acquisition (M&A) activity. The London-based operations of Bottomline should merge seamlessly with Simplex’s in the Europe, Middle-East and Africa (EMEA) region with Sterci contributing even more continental European and extra Asian clients from Singapore and elsewhere into the mix.
“The deal means whereas before we had 50 SWIFT experts, we now have more than 200 that can assist clients looking to join or enhance their SWIFT Service Bureau (SSB) processing commitment with us,” says Hughes. “The SSB arena, used by corporate treasurers and others to process global cross-border transactions via certified third-party SWIFT ready firms, is undergoing a consolidation trend - as many technology-based processing vendors are - due to the need for economies-of-scale savings and a better more resilient service. SWIFT in particular is demanding SSB firms have better business continuity and disaster recovery capabilities under its new Shared Infrastructure Programme (SIP) qualifying criteria, which is driving SSB consolidation.”
The on-boarding assistance that SSBs can provide to those corporates wishing to join SWIFT, navigating the complex legal and technical issues involved when using the messaging platform, mean that there should still be considerable business available from those who don’t wish to commitment to SWIFT’s own cloud-based Alliance Lite 2 (AL2) connectivity option.
“We’ve talked to corporate treasuries, banks and other clients over the last couple of weeks and they’re very excited about the [takeover] deal,” continues Hughes. “It really grows our SWIFT and non-SWIFT connectivity options and available technology suite for clients across the securities, treasury and payments processing arenas - who are naturally excited about what the link-up could mean for seamless services, extra functionality and so forth.”
Under the combined entity it is likely that one SSB will operate out of London, combining Bottomline and Simplex’s existing operations, while another ex-Sterci SSB will be based out of Geneva in Switzerland, and rebranded as Bottomline.
Potential for Further Acquisitions and a TMS Purchase?
In response to the theory, expounded in the bobsguide news report about the acquisition by Enrico Camerinelli, a senior analyst for the Aite Group consultancy, that Bottomline may now go on to buy a treasury management system (TMS) vendor to further its corporate connectivity and ecosystem offering, Hughes is non-committal.
“We’ve already partnered with a number of TMS providers in the past, but there is no ‘anointed one’ that we are planning to try and takeover,” he explains. Bottomline has got a successful track record of M&A, but there is no immediate logical extension of what we are doing at the moment necessitating us to buy a TMS company.”
Indeed, the consolidation in the TMS space seen earlier this year when Wall Street Systems (WSS) acquired IT2 aping SunGard’s earlier constellation of TMS providers under one roof, suggests there may be a pause in TMS consolidation. Kyriba, Reval and some of the other smaller more nimble TMS providers are the only ones left on the block these days but Hughes is not saying if any link-up is possible in the future, beyond saying that “Bottomline is always on the lookout for opportunities.”
New Management Structure
The new management structure at the combined entity will mean Simon Kalfon, the ex-chief executive of Sterci will now become the managing director of Bottomline’s financial messaging division, reporting into Nigel Savory, MD of Bottomline’s Europe, Middle-East and Africa (EMEA) business.
“I’m glad Kalfon and his senior colleagues are staying with the business as they have great experience and will be a considerable asset,” comments Hughes. There will possibly be some rationalisation of staff but Bottomline are not examining this issue until the $5m Simplex aspect of the deal is completed and the different country-by-country strengths of the companies hopefully mean this will be kept to a minimum.
“We’ve been talking off and on about this deal with Sterci since at least 2010, so we’ve not entered into it hastily,” says Hughes. “We’ve got to know and respect the senior management team and completed a thorough due diligence analysis of the business, so we are very happy with the alignment and the acquisition. With this step we are creating a large and varied financial messaging technology giant and a global centre of excellence for this field. I believe we are well based to now offer a comprehensive range of products and services – across corporate actions, data management, reconciliation, funds management, payments and so on - whether that is in the cloud or not, to best serve the needs of our clients.
“The combined entity is a much more European company with more French and Spanish-based clients,” concludes Hughes, which is handy for him as he speaks both languages. ‘Speaking the same language’ is often the key to a successful integration following a takeover, but when it is literally the case then the process should be relatively straightforward.