February 20, 2018 / 8:12 AM / 10 months ago

Temenos in talks to buy British trading software company Fidessa

(Reuters) - Swiss banking software supplier Temenos (TEMN.S) is in talks to buy Fidessa Group FDSA.L for about 1.4 billion pounds ($1.96 billion), it said on Tuesday, to add the British company’s equities-trading technology to its portfolio.

Fidessa shareholders would receive 35.67 pounds in cash for each share, plus dividends of 0.797 pounds per share, Temenos said, representing a 22 percent premium to Fidessa’s closing price on Monday.

Fidessa shares jumped by as much as 24.7 percent on Tuesday to 36.35 pounds, trading below the offer price. At 1122 GMT the price stood at 35.45 pounds, up nearly 22 percent.

“Should a firm offer be made ... the board of Fidessa intends to recommend its acceptance to shareholders,” the company said in a statement.

Analysts at Berenberg said the deal was consistent with Temenos’s strategy of expanding outside of core banking.

“Fidessa is a market leader in securities trading with a stronghold in the City of London; the backing of larger Temenos can only help expand its leadership,” they said.

However, they added that Fidessa’s revenue growth had been modest and it was unclear if Temenos would be able to accelerate that through investment and strategies.

Geneva-based Temenos, which bought Australian wealth management software business Rubik in a more modest deal last year, has until March 20 to announce its intention to make a firm offer.

Knut Woller, analyst at Baader Helvea Equity Research, said the deal would come at a time when software license renewals that have powered Temenos results for several years are reaching their peak.

“From a strategic perspective, we would see Fidessa as a complement to the company’s current offering,” he said.

Fidessa, which listed on the London Stock Exchange in 1997, provides software and services for investment management systems, analytics and market data, serving both the buy-side and sell-side. Its products include an order management system for equity markets.

Temenos shares fell 7 percent on Tuesday, set for their worst day in 20 months.

GROWTH QUESTIONS

UBS said that while the deal would be likely to increase earnings, Fidessa’s low growth would weigh on Temenos’ growth rate, adding that the British company had averaged only 3 percent underlying annual growth in the past three years.

“We question to what extent Temenos would be able to accelerate this given its subscription model and end-market exposures, and even if Fidessa brought a relationship with many Tier 1 banks around the world, leveraging this for core-banking deals may be hard,” said analyst Michael Briest.

Analysts at Vontobel, however, said the acquisition would be a smart strategic move that would expand Temenos’s market into trading, investment management and capital markets it estimates to be worth about $20 billion.

Possible rival interest in Fidessa could come from companies such as financial software giant Fiserv (FISV.O) and FIS (FIS.N) as well as private equity players, analysts said.

“In particular, we suspect several private equity firms have run the slide rule over Fidessa in recent years,” Investec said.

U.S. companies Fiserv and FIS did not respond immediately to requests for comment outside business hours.

Rothschild is acting as lead financial adviser to Fidessa while Credit Suisse is advising Temenos.

Reporting by Silke Koltrowitz in Zurich, Noor Zainab Hussain in Bengaluru and Paul Sandle in London; Editing by Michael Shields and David Goodman

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