The following excerpt is from Corum’s Quarterly Research Report of 2007 Q4. Corum is pleased to make the entire report and earlier ones available to members.
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For a limited time Corum is also providing free access to the latest 2008 Q1 Corum Quarterly Research Report, which contains sections on all sectors of software m&a including IT Services and Business Process Outsourcing. Sign up today to subscribe and receive the Corum Quarterly Research Report for 2008 Q1.
2008 Q1 — Vertical Market Technology
Financial Services
The first quarter of 2008 was quite active for many sectors of the vertical market space and particularly active for the financial services sector. During this period of extreme concern in the financial markets with credit tightening, subprime mortgage meltdown and the deep decline in real estate markets, we tracked in excess of 30 M&A deals in the financial services sector. Why during such a volatile time in the markets would there be such a high degree of acquisition activity? Several factors come to mind.
The Financial Services sector has a long history of major players such as FiServ, SunGard, and Metavante using technology acquisitions as a key growth strategy. Indeed SunGard’s acquisitions of Advanced Portfolio Technologies and Financial Technology Integrators, as well as Metavante’s deals for BenSoft and Nomad Payments Ltd continued this process.
Advanced Portfolio Technologies, Inc. provides risk management systems and portfolio optimization software for asset managers, hedge funds, pension funds, broker/dealers and proprietary traders. FTI delivers portfolio management, pre-trade compliance, regulatory compliance, integrated performance reporting and modeling systems in a Web services environment.
Metavante, provider of banking and payments technology, acquired BenSoft Incorporated and its product, RepayMe. RepayMe software provides a Web-based tool for individuals who participate in various benefit programs to easily obtain reimbursement for eligible expenses that are covered by their benefit plans. Nomad Payments Limited (UK), is a leading provider of prepaid and debit card processing and licensed software.
In addition to the major firms’ activities, players such as PayPal, itself acquired by eBay in 2002, are beginning to use a similar strategy. PayPal’s acquisition of Fraud Sciences in Q1 demonstrates this approach. Fraud Sciences Ltd., is an Israel-based provider of online credit card-not-present fraud detection which has developed technology designed to differentiate between real and fraudulent transactions.
Another key growth strategy in this sector is the ability of firms to offer support for new payment models, instruments and delivery mechanisms. Examples of this are MF Global’s deal for Choice Odds and 3PEA International acquisition of Wow Technologies, Inc.
MF Global Ltd., the futures and options broker, acquired ChoiceOdds, an independent UK-based financial binary trading firm, ChoiceOdds, specializes in making on-line markets in this fast-growing area of retail binary trading – an asset class which is rapidly replacing more traditional types of trading.
3PEA International, Inc., a payment solutions company acquired Wow Technologies, Inc. / Wow Card Services. The acquisition of WTI allows 3PEA to integrate a PCI DSS certified Prepaid Stored-Value MasterCard/ATM Card Issuer Processing Platform into it payment solutions.
Another factor that we expect will continue the acquisition activity in this sector is the impact of the baby boomer’s retirement plans. In this area, TheRetirementSolution.com’s acquisition of Investment Tools and Training LLC (ITT) and the business of Razor Data LLC, two privately held companies that will enable TheRetirementSolution.com to introduce its proprietary platform in the investor education space. The acquisition of these two companies is central to the company’s growth strategy to market a diverse set of financial products and services, principally online. Investment Tools and Training markets and delivers a complete range of investing and financial management courses, products and services.
A final item to note is the probability or certainty of increased regulation within the Financial Services marketplace. The Federal government is currently reviewing several plans to restructure the regulatory environment including adding Federal regulation of the insurance industry. These changes offer additional opportunities for technology service providers and will drive additional M&A activity.
Energy and Environment
Perhaps no other sector is shaped by politics and public policy or filled with contradictions as much as this sector. For U.S. energy politics, this is one of the busiest times ever. Laws and regulations now taking shape will influence the energy industry for many years. Concerns about foreign policy and oil supply, electric infrastructure reliability, electricity demand management and power plant construction are prevalent. The sustainability sector continues to see aggressive investment, while the adoption of sometimes young and expensive, yet environmentally sustainable technologies are further inhibited by general economic conditions. On the broader scale, growing worldwide energy consumption, hydrocarbon production complexities, climate change concerns and the emergence of a global carbon trading market add complexity to an uncertain market.
With oil consistently trading above $100 BBL and unlikely to go lower, valuations in the conventional energy sector are comparably high. Alternative energies and technologies that drive efficiency finally have the market conditions, absent of subsidies to command significant investment. It is a time of technology divergence and experimentation with a lot of conjecture about which are the most commercially viable solutions. The stimuli that have helped to create a robust investment climate for alternative and sustainable technologies may also be inhibiting consumer adoption.
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