Apax’s Finastra Deal Highlights Value of Trusted Assets in a Time of Flux

PE firm Apax’s acquisition of Finastra’s TCM unit illustrates the continuing value and potential of TCM assets (despite their being relatively old). The move also suggests that, once established, transaction systems do not retire, and that the capital markets infrastructure operates in large part at a different timescale from the development of consumer software. Taken together with other significant transactions (such as Clearwater’s acquisition of Enfusion and Beacon), this deal also suggests a strong interest in and focus on fundamental infrastructure software, whether on the buy-side or the sell-side.

Moreover, this hasn’t happened by accident – in fact, the timing could not be more favourable. At this time, the only certainty in financial markets is that there will be more uncertainty and more volatility, and in this environment, banks and brokers’ TCM units will benefit (on the buy-side in particular, both traditional and alternative asset managers will see more trading activity and use of derivatives). As volumes and profitability (particularly for intermediaries) increase, banks and other financial institutions that stand to gain (such as broker-dealers and interdealers) will be looking to refresh and reposition their technology structures. As a result, they will be taking a fresh look at their ALM, trade lifecycle management, market risk and pricing analytics technology stacks.

Finally, this deal (and related ones) will, in our view, put fresh pressure on other conglomerates in the marketplace (including, among others, LSEG, NASDAQ, FIS and BlackRock) to clarify their position and strategy in this area. Several questions arise:

• If they are currently combined with non-capital markets business units, do they continue their cross-business combinations?
• Or if they happen to address a narrower range of asset classes (say OTC derivatives or just FX), do they acquire new assets?
• Do they acquire predominantly sell-side-focused tools to create more flexibility in their buy-side portfolio management systems, or do they combine analytics and pricing environments from diverse business and asset contexts?

The questions raised around strategy and technology are many and multi-dimensional. In this context, we would argue that current transaction(s) are driven by recent market shifts, but that they also reflect the possibilities engendered by consolidation and transformation in this sector.