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An article relating to this blog post on Finextra:

Advent International acquires majority stake in Sophis

Private equity outfit Advent International has acquired a a majority stake in Paris-based portfolio and risk management technology vendor Sophis through a leveraged buyout (LBO).


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Investments in the Risk Management software sector

The most significant private equity investment in the financial technology sector these past few months was definitely Advent International's (a TA Associates competitor and spin-off) acquisition of a majority stake in Paris-based portfolio and risk management software provider Sophis last July.

Sophis provides two main solutions: RISQUE (for sellside institutions) and VALUE (for the buyside). The Company has been riding the wave of increasing number of hedge funds / assets managers and their associated financial IT spending trends.

What do you think of this investment? What does it mean for competitors such as Murex and Calypso? Will this spark a wave of consolidation in the sector?

Discuss.

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Comments: (2)

A Finextra member
A Finextra member 23 October, 2007, 05:02Be the first to give this comment the thumbs up 0 likes

Every day it seems more evidence surfaces that large investment banks are in the midst of a profound identity crisis.  Technology is redefining the very nature of capital markets and will increasingly force bulge bracket firms to make difficult choices with respect to their core businesses.  Hedge funds and asset managers are readily able to design, deploy, and trade their own products without the assistance of intermediaries such as investment banks and brokers.  The model of being all things to all customers - strategic advisor, intermediary, asset manager, financial sponsor, principal investor - is clearly unsustainable.

The ongoing crisis in the fixed income space underscores this point: shareholders will not tolerate for long volatile earnings resulting from a rudderless business model.  A wave of restructuring is indeed on the horizon, but not in the trading/risk management technology space - rather, within the banking & brokerage space.  As these firms race to redefine themselves through spin-offs, divestitures, and other strategic moves, I would expect, rather than consolidation, an explosion in the number of technology players seeking to provide a range of analytics, niche products, and value-added services to the next generation of financial enterprise.

Elton Cane
Elton Cane - News Corp Australia - Brisbane 01 November, 2007, 16:38Be the first to give this comment the thumbs up 0 likes

KKR and First Data might argue your point about the Advent and Sophis deal being the most significant private equity deal of recent months, though if you limit the statement to the software sector, you’re probably right.

As for whether it will spark a consolidation wave, I guess it depends on Advent’s reasons for investment and Sophis’ subsequent strategy. Is it an international expansion play? Possibly. Sophis already had a wide network of global offices, but has since pushed to grow its derivatives business presence across its geographies, most recently with the hire of a chief operating officer for North America.

It’s probably not a strategic restructuring play, as Sophis was already quite focused. Is it a high-growth play? Possibly, if you look in the public markets at the performance of Advent Software (no relation), which also sells into this space you can see that there is growth in this market. But then if you look at the performance of Sophis’ fellow French company Linedata, where they hired their new North American COO from, you can see that just riding the wave of increased IT spend from the buy side isn’t enough – execution and product differentiation are key, and building strength in the derivatives side of the business will definitely help Sophis hit whatever targets the private equity team has in mind.

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Private Equity Investing in Financial Technology

A community for discussing investments made in financial technology providers by the venture capital and private equity community.


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