Last year was very busy for mergers and acquisitions of financial technology providers and 2019 is set to maintain the same pace according to consultancy Aite Group.
For example, SS&C Technologies acquired Eze Software; custodian and asset manager State Street Global purchased Charles River Development, the front and middle office platform; and Nasdaq announced it was buying Cinnober Financial Technology. Nasdaq said this month that the acquisition of the Swedish market structure technology provider has been completed.
Aite’s institutional securities & investments team held a webcast yesterday to discuss their report, Top 10 Trends in Institutional Securities & Investments, 2019: More M&A Ahead. Virginie O’Shea, research director at Aite, said on the webcast that the consultancy expects this year to be just as busy as 2018.
“Custodians and market infrastructure providers want to expand into data services and and get involved in the full end-to-end trade life,” she added.
Consolidation will increase as more buy-side firms remove overlapping technology platforms and simplify IT infrastructure for more efficient straight-through processing. Aite identified probable acquisition targets as Black Mountain Software in the credit space, and AlphaDesk and Enfusion in the hedge fund space.
The study also named Northern Trust, BNP Paribas, and Brown Brothers Harriman as potential acquirers as they have been active in fintech. For example, Northern Trust has launched ArcLine Alternatives, which provides cloud-based reporting for private markets and may want to make a wider asset management play.
“BNP Paribas has long held a stake in middle-office software solution provider SLIB, but perhaps next year will see the custodian make a bigger play in the fintech realm?,” added Aite. “BBH’s Infomediary business has continued to organically build out its capabilities in key post-trade servicing areas, and an acquisition in an adjacent space could be beneficial for a more complete offering.”
Asset managers
BlackRock’s Aladdin has been providing risk management analytics and Aite said Amundi, the largest European asset manager, is looking to provide similar services.
“However, given the scale and the deep pockets required to keep pace with market requirements, it is likely any bids will be limited to the top 10 largest global asset managers,” said Aite.
Asset managers are also using more alternative data as they look to increase returns and so these data providers may also become targets.
“The end of 2018 saw Nasdaq pick up alternative data aggregator Quandl, so expect its other market structure provider peers to be keeping a close eye on this community of vendors in 2019,” added Aite.
Paul Sinthunont, analyst at Aite Group, said on the webcast that he expects more cross-border acquisitions in asset management, especially among the squeezed middle-sized firms.
“Large firms will likely thrive, smaller firms with niche or product expertise will survive, and midsize asset managers without a significant market identity will suffer,” he added.
Fee depression
Sinthunont continued that the industry was surprised by the launch of zero-fees investment products last year. Fidelity launched two zero-fees mutual fund products and one fund, the Fidelity Zero Total Market Index Fund, gathered more than $1bn (€880m) in three months. As a result he expects more zero-fee funds to be launched and, in addition, institutional investors are likely to ask for changes to fee structures.
“We could see fees changing from being asset-based to be more based on performance,” Sinthunont said.
