Shares in Fidessa (FDSA) skyrocketed this week after the UK financial data group received a whopping £1.4bn all-cash bid from banking software provider Temenos (SW:TEMN).
Fidessa’s 2017 numbers had already set a positive tone, with management anticipating future investment opportunities or indeed margin expansion in 2019. That was partly thanks to increasing capacity as Mifid II-related work tails off.
The terms of the potential deal look attractive. Fidessa shareholders will receive £35.67 in cash per share, representing a 37 per cent premium to the closing price the day prior to talks being announced. Moreover, investors are entitled to receive final and special dividends for 2017, taking the total payout to £36.47.
So why combine the businesses? For Temenos’ board, the deal “represents a compelling opportunity to create a global leader in financial services software”. Buying Fidessa is a serious step towards supplying global financial institutions with the software “to thrive in the digital banking age”. The performance synergies are clear: on a pro-forma basis, the enlarged group could have achieved revenues greater than $1.2bn (£0.86bn) for the year to December 2017, and a cash profit margin of 32.3 per cent. Alone, Temenos grew its top line by 16 per cent to reach $735m in the same period.
For Fidessa’s chairman, John Hamer, while his business is “strongly positioned to benefit from the strategic and regulatory changes in its markets” the offer represents “a very attractive and immediate return to our shareholders”. If approved, the deal would see Fidessa leave the London market.
That said, before the offer became official, analysts at Barclays highlighted cultural differences between the companies – suggesting a potentially risky integration. Presciently, they also predicted the deal would be pitched as a cross-selling opportunity – a notion echoed by Temenos. However, for Barclays, there is limited evidence of banks standardising their systems across retail and investment banking.
