The ‘top four’ treasury management systems vendor is up for sale – in a move which could signal uncertainty in the wider technology market. Private equity firm Warburg Pincus has owned the supplier since 2006. There is speculation that…
…SAP or Oracle could be interested in the vendor in a move that could boost the treasury modules of their ERP systems. Such an acquisition would be very much ‘on trend’ in the industry – consolidation has been a key feature in recent years (see Treasury Today January and March 2011).
Wall Street Systems’ recent spate of acquisitions had already provoked comment. Last month, in an off-the-record interview, the director of a smaller systems provider told Treasury Today the recent acquisitions did not fit Wall Street Systems’ usual model and the vendor could well be ‘bulking up’ for an IPO or sale. Those acquisitions include City Financials and Speranza in 2010 followed by Thompson Reuters’ Treasura in January 2011. His comments have proved prescient.
The sale of the company has interesting implications for treasurers. First, if consolidation begins to remove competition at this level, concerns over a lack of choice may become more valid, perhaps to the benefit of the smaller players.
Second, the sale is a reminder that many of the key players in the TMS space are owned by leveraged financial buyers rather than being publicly-traded or owned by non-financial companies. Moreover, a number of the most important companies were bought in the latter stages of the debt bubble in highly leveraged buyouts when debt was at its cheapest and whose economics would be dramatically altered by rising rates.
SunGard was purchased by a group of investors including the Blackstone Group and Goldman Sachs, organised by Silver Lake, in 2005; IT2 has been owned by CapMan since May 2007; and Reval is backed by venture capitalists Commonwealth Capital Ventures and North Bridge Venture Partners, which became involved with the vendor in July 2007.
The years following these purchases have been difficult ones for private equity buyers in general and it is not clear that these particular forays into the treasury technology market have provided the kinds of returns such institutions typically seek. In any case, most financial buyers look to exit from deals in three to five years, which suggests that Wall Street Systems may not be the only company looking for an IPO or a sale – regardless of their public stance. Treasury technology consultant Ken Lillie, of Lillie Associates, says, “Private equity companies own firms as investments and are always assessing those investments, so from that point of view this potential sale as reported is not that surprising.”
However, a spate of sales or restructurings should give treasurers pause for thought given the trend towards hosted and SaaS solutions. If, at the very moment treasurers are moving to outsource more functionality to their TMS providers, those providers are entering a more uncertain world themselves, should treasurers wait until the environment becomes clearer?
In particular, if Wall Street is snapped up by an existing supplier of ERP systems, which typically have only very basic treasury modules, would this become the product of choice for companies wanting a one-stop shop and also a potentially more stable supplier? Certainly the combination would be a significant threat to the standalone providers, particularly in the SME space. It would also create a new and powerful competitor in the growth markets of Asia and Latin America where companies like SAP have far greater penetration than their TMS counterparts.
Wall Street Systems and Warburg Pincus both declined to provide additional comment.