Xchanging (LSE: XCH), one of the largest and fastest growing global business processors, has signed a letter of intent with SIA-SSB (SIASSB), the European leader in financial and payment systems services, to form an Enterprise Partnership (EP). As part of this proposed EP, Xchanging will acquire 51% of Kedrios S.p.A. (Kedrios), the Italian subsidiary of SIA-SSB that specialises in securities
processing and fund administration services for the Italian market. Xchanging will assume operational control of Kedrios and its 152 employees. Upon completion, Xchanging will employ over 1300 staff and process over 40 million transactions per year for more than 100 customers on its Continental European financial markets platforms.
Strategic rationale for the partnership
This EP will combine Xchangingâs European expertise in securities processing and investment account administration with Kedriosâ strengths in fund administration and in the Italian market. This partnership will be an important building block for the creation of
a pan-European operator for securities processing, investment account administration and fund administration to blue-chip financial markets customers. In particular this partnership delivers the following benefits:
- allows Xchanging to serve its existing customers who have operations in the Italian market
- expands Xchangingâs international customer base
- adds a new platform generating scale within Xchangingâs financial markets operations.
Kedrios will add value to the Xchangingâs entry strategy in Italy with its deep knowledge in financial services, IT and business process outsourcing, as well as its strong customer relationships and robust technology solutions.
In addition, SIA-SSB and Xchanging are assessing the possibility of leveraging Xchangingâs pan-European expertise in procurement services. The EP with SIA-SSB also provides a great opportunity for Xchanging to further develop its strategic 10% investment in CAD IT who in the future could become the software provider for the new partnership. CAD IT is the leading securities processing software provider in Italy with about 80% market share.
David Andrews, CEO Xchanging said, âThis Enterprise Partnership with SIA-SSB is a logical step in the growth strategy of Xchanging in the Continental European market for financial services as well as procurement. We have built a strong position in the securities processing and investment account administration markets in Germany and expanded procurement operations in France, Germany, Spain and the Benelux. This new partnership leverages our successful platforms and gives us future opportunities for growth in the region. It reaffirms our commitment to grow rapidly through our Enterprise Partnership modelâ.
Massimo Arrighetti, CEO SIA-SSB said, âAs a result of this partnership with leading international business processor Xchanging, we can now achieve two main goals - on the one hand expanding the range of Kedrios business services and customers and on the other hand maintaining and developing Kedriosâ professional skills and technological know-how; the companyâs two key strengths since its creation in 2001â.
Matthias Sohler, Managing Director, Continental Europe for Xchanging added, âWith this market entry into Italy, we will now be able to serve our existing customers in the banking, asset management and insurance market in Italy. We are building the foundation for a large, independent financial market operator, covering all relevant aspects of a pan-European transaction bank in securities operations, investment account administration and fund administrationâ.
Enterprise Partnership details
Revenues for Kedrios for the year ended 31 December 2009 were â¬18.0 million1. The impact on Xchangingâs financials in 2010 is not expected to be material. Xchanging is confident that it can leverage its expertise and capabilities to grow the business as it has
its other EPs. Xchangingâs comprehensive processing initiatives are anticipated to yield 1 This excludes revenues from a business unit that was disposed of in March 2010. significant savings, such that the EP is expected to break even during 2011, and deliver
profits to the Group in 2012.
Xchanging will subscribe to a 51% stake in the EP through a share capital increase and invest in the EP over the next two years to re-organise the business and create a platform for future growth. Xchanging expects to grant SIA-SSB the option to sell its
shareholding to Xchanging after the third anniversary of change of control.
The consideration and subsequent investments will be funded through existing cash resources. Further announcements will be made when the terms of the deal are finalised and agreed, which is expected to be in the third quarter of 2010.