The boards of both vendors have initially agreed to Temenos’s acquisition of Fidessa to ultimately provide a wider array of products and services.
Temenos and Fidessa announced February 21 that their governing boards reached agreement on an all-cash $1.96 billion (£1.4 billion) acquisition whereby Temenos will own Fidessa via the subsidiary Temenos Bidco in an effort to capitalize on “a huge opportunity to combine the complementary product strengths” of the two vendors.
The agreement specifies that Fidessa shareholders will get £35.67 ($49.81) in cash for each Fidessa share, according to both vendors.
Fidessa shareholders will also get “at close of business on 11 May 2018 or at close of business on the business day prior to the effective date of the Transaction (if earlier)” a final dividend and a special dividend for 2017. The dividends will total “79.7 pence in aggregate per Fidessa share,” officials say. “The price of £35.67 in cash for each Fidessa share represents a premium of approximately 36.9% to the closing price of £26.05 per Fidessa share on 16 February 2018.”
“We have long held Fidessa in high regard,” says Andreas Andreades, executive chairman of the Geneva-based Temenos, in a statement. “And we share a common goal of creating great software across both our segments and we … believe that this powerful combination will accelerate both companies’ complementary growth strategies in banking and capital markets and will enable us to cross-sell into our existing client bases and capture a greater share of the IT and software spend of banks especially as they move to the cloud.”
Temenos official says the bigger company to come will have on a pro forma basis:
- For the year that Dec. 31, 2017, revenues greater than $1.2 billion and an EBITDA margin of 32.3 percent;
- A diversified revenue base “with approximately 42% of sales for the year ended 31 December 2017 in Europe, 29% in the Americas, 20% in Asia Pacific and 9% in the Middle East & Africa;”
- And “significant benefits” via “efficiencies and cross-selling opportunities” that may generate approximately “$60 million per annum of run-rate pre-tax cost synergies, which are expected to be fully achieved within three years post completion. The EBITDA margin for the Enlarged Group is expected to increase from 32% to 37% pro forma for the run-rate cost synergies.”
Overall, Temenos officials say that the acquisition is “a compelling opportunity to create a global leader in financial services software by combining Temenos’ and Fidessa’s leading positions in banking and capital markets software, respectively.”
The combined company will benefit from “a larger addressable market, a broader product offering and deeper customer relationships, underpinned by increasing demand amongst financial institutions for modern technology in order to drive improved efficiency and customer service,” according to Temenos.
The acquisition is intended to expand Temenos’s “relationship with Tier 1 and Tier 2 banks globally and strengthens its position as a key strategic partner with these organizations,” officials say. “In addition, Temenos is confident of being able to leverage Fidessa’s depth of experience, relationships and knowledge in the US and Japan to grow its core banking business.”
The acquisition should also help Temenos make the most of spending by financial institutions on capital markets software in 2018, “estimated to be approximately $14 billion,” Temenos officials say. “Approximately $3 billion of this $14 billion was spent by financial institutions on third party vendors. Such total spend is expected to grow by 8% per annum.”
In addition, Temenos officials say that the combination of “the complementary product sets of Temenos and Fidessa” will help the company leverage current conditions such as:
- Large banks that “are increasingly outsourcing their internally developed systems to third party packaged software providers in order to reduce costs and to respond to the constantly evolving regulatory, commercial and technology landscape;”
- A fragmented software vendor landscape that is “dominated by legacy systems” but has to adapt to customer demands for “the highest levels of automation to reduce costs and speed up execution” and for further vendor consolidation;
- The need to “deploy software on-premise or in-cloud, across multiple business segments and geographies” that is both cost efficient and compliant with regulation;
- And the need for achieving “digital ambitions whilst driving down the total cost of ownership.”
“In particular, Temenos’ management sees significant opportunity in combining Fidessa’s expertise in SaaS [software as a service] with Temenos’ best in class sales, development and delivery operations,” according to Temenos. “This combination will allow Fidessa’s products to benefit from a larger client base and organization and to realize incremental growth opportunities.”
Ultimately, the acquisition may “improve the profitability margins of Fidessa’s operations and accordingly expects the Transaction to generate approximately $60 million per annum of run-rate pre-tax cost synergies,” officials say. “These cost synergies are expected to be fully achieved within three years post completion. The pre-tax cost of achieving these cost synergies is estimated at $60 million. Pro forma for these run-rate pre-tax cost synergies, the EBITDA margin for the Enlarged Group for the year-ended 31 December 2017 would be 37%.”
Temenos officials add that the combined company will “generate additional revenue growth” via:
- Temenos’s sales-focused model and discipline across the organization;
- Adding the back and middle office functions of Temenos to Fidessa’s front office product offering in the capital markets segment;
- Ongoing investment in software solutions for new asset classes across capital markets;
- Cross-selling Fidessa products to Temenos’s clients globally;
- Cross-selling Temenos products to Fidessa customers, “particularly in the US and Japan where Fidessa has long-standing client relationships and a strong local reputation.”
“Our strategic focus has always been on organic growth and investing heavily in product development,” says John Hamer, chairman of the London-based Fidessa, in a prepared statement. “We have combined this with a long-term vision and commitment to our customers, employees and shareholders. As a result, Fidessa has developed a leading market position and strongly benefits from a stability derived from nearly 90% of its revenues being recurring. We have always been highly cash generative, consistently returning excess cash to shareholders through our special dividend policy. Our total shareholder return since our IPO is 2,001%; this compares to the FTSE All share return of 253%.”
Credit Suisse is acting as financial adviser exclusively for Temenos and Temenos Bidco, officials say.
Rothschild is acting as the financial adviser exclusively for Fidessa, which has retained Jefferies as its corporate broker and financial advisor, and Numis Securities Ltd. as a corporate broker.
The firm Davis Polk & Wardwell London LLP are serving as legal advisers to Temenos while Cleary Gottlieb Steen & Hamilton are the legal advisers to Fidessa, officials say.
More clarification about when the transaction will be complete may come by mid-March, officials say.
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