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An article relating to this blog post on Finextra:

Royalblue to buy LatentZero for £63m

London dealing systems vendor royalblue has signed a conditional agreement to acquire UK-based LatentZero, a privately-held provider of front office software to buy-side institutions, for a total cons...


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Royalblue scores big fat zero with Gartner

Royalblue’s decision to splash up to £63 million on buy-side OMS vendor LatentZero has been given a firm thumbs down by industry analyst Gartner

Unveiling the deal earlier this week, the London-based vendor played up the strategic benefit to the two companies and their respective customers "by providing, for the first time, the potential for true integration of multi-asset buy-side and sell-side trading flows".

Gartner pooh-poohs the idea, pointing to similar claims made by ITG when it acquired Macgregor in 2005. “To date…we have not seen such synergy materialise,” says analyst David Schehr, in an uncomprimising research note. “We find no significant reason for buy-side firms to look favourably at a sell-side organisation gaining control over their OMS vendor because any synergies would likely benefit the provider more than clients.”

For good measure, Schehr recommends that LatenZero customers “look skeptically at any upgrades or pushes for expanded use of non-OMS royalblue services to ensure that any added features benefit you, and not just royalblue”.

Customers considering an OMS replacement, meanwhile, are  urged to await evidence of the claimed product synergy between the two companies' offerings. “Should such synergy not occur within 9 months to 12 months, look first to other vendors,” says Schehr.

For my money, Schehr's being a bit hard-line. Chris Aspinwall and his team at royalblue have done a fine job in repositioning and growing the core Fidessa business since the low-point of the dotcom tech stock plunge. Now the vendor has set its sights on the cross-asset trading space. Plug and play integration between the OMS and EMS is the name of the game here. As a broker-neutral vendor plying its trade in a market increasingly dominated by bulge-bracket buy side operators, royalblue should be applauded for its ambition, rather than chided for the perceived failings of others.

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Comments: (2)

Simon Barnby
Simon Barnby - Archax - London 23 April, 2007, 11:23Be the first to give this comment the thumbs up 0 likes

Paul, from your comments at the end of your posting, it's clear that you understand and appreciate the key rationale behind this acquisition. We're very pleased to see that.

The problem with research notes like the one you commented on, is that if the background analysis and assumptions are not 100% correct, the wrong conclusions can be drawn.

As a successful, independent, global software technology vendor to financial markets participants across the board, royalblue already has many clients from both the buy-side and the sell-side communities. Consequently we are significantly different to the "sell-side institutions" such as ITG to which the report compares us.

In addition, the survey that the report cites claiming that LatentZero is a supplier to just tier 2 asset managers (with less than $25billion assets under management) is incorrect.  The company has 13 tier 1 clients managing more than this level of assets in the US alone! 

We would agree that buy-side firms could well be concerned if their OMS vendor was owned by a sell-side firm. There would then clearly be the potential for a conflict of interest in routing order flow, and any real synergies that might benefit the buy-side clients are difficult to see.

However, our deal is the first acquisition by an independent, purely technology focused vendor, bringing together proven market-leading solutions for both the buy-side and sell-side, so it really is very different.

In fact, the speculation that LatentZero clients might be unhappy with this acquisition couldn't be further from the truth. 

Both royalblue and LatentZero buy-side clients have been very positive and supportive of the deal and see that it will deliver real benefits to them and the marketplace going forward. 

And in our view, they are the people that really count.

 
Paul Penrose
Paul Penrose - Finextra - London 27 April, 2007, 16:38Be the first to give this comment the thumbs up 0 likes Point taken - it seems that Gartner may have been a mite confused about royalblue's genesis and pedigree. I'll e-mail the post to David Schehr and see if we can get him to put his comments in context.