16th Apr 2007 07:02
Royalblue Group PLC16 April 2007 16 April 2007 royalblue to acquire LatentZero Bringing together leading financial software vendors to the global buy-side and sell-side markets Highlights • Key strategic acquisition combining leading financial software vendors to the buy-side and sell-side markets. • Delivers on royalblue's well documented strategy to provide the best products and services to both the buy-side and sell-side communities. • Transaction makes integration of buy-side and sell-side flows possible on a significant scale for the first time. • Highly complementary businesses with very little overlap between the Fidessa and LatentZero product sets. • Existing LatentZero management team, including LatentZero's executive directors Richard Jones and Dan Watkins, will remain in place. • Maximum consideration is £63 million, comprising initial consideration of £38 million and deferred consideration of up to £25 million. • Expected to be earnings neutral to royalblue in 2007 and accretive in 2008 and beyond1. 1 This statement should not be interpreted to mean that royalblue's earnings per share for the current or future financial years will necessarily match or exceed the historic published earnings per share. Introduction London - 16th April, 2007 - royalblue group plc (LSE:RYB) the company behindFidessa, a world leading solution for multi-asset trading systems, market dataand global connectivity, announced today that it has entered into a conditionalagreement to acquire the entire fully-diluted share capital of LatentZeroLimited ("LatentZero"), a privately owned, leading supplier of front-officesoftware to investment managers. LatentZero will continue to operate as a separate entity within the royalbluegroup and the existing management team, including Richard Jones (co-founder andCEO) and Dan Watkins (co-founder and director), will remain in place as part ofthe transaction. About LatentZero Formed in 1999 and headquartered in the UK, LatentZero is a leading supplier offront-office software to the asset management industry and counts several of theworld's largest asset management firms amongst its 75 clients. With offices inLondon, Boston, New York and Paris, LatentZero employs around 170 staff andprovides software for fund manager decision support, order management, executionmanagement and investment compliance. LatentZero has set new standards forinvestment systems through its unique combination of business knowledge, marketvision and technology innovation and its products are used to manage more than$8 trillion of assets, across equity, fixed income, foreign exchange andderivatives. In its unaudited accounts, under UK GAAP, for the year ended 31 December 2006,LatentZero reported revenue growth of 30% to £17.3 million (2005 audited £13.3million) with recurring revenues representing approximately 50% of the total.Approximately half of the revenue is derived from Europe and the remainder isderived from the United States. LatentZero reported an operating loss of £0.8million in the year ended 31 December 2006 (2005 audited loss £0.8 million)before charges for share incentives, and, as at that date, had gross assets of£12.0 million (2005 audited £11.3 million). LatentZero is expected to have netcash of £2.5 million at completion. The operating losses incurred in past yearshave been largely a consequence of R&D investment in the development ofLatentZero's product suite, all of which has been written off to its profit andloss account in the year in which it was incurred. The recent growth inrevenues show that this investment is bearing fruit and with the level ofrecurring revenue now established it is possible to finance ongoing developmentfrom within the revenue base. LatentZero is already trading profitably in thecurrent financial year and the operating margin is expected to grow. The transaction is expected to be earnings neutral to royalblue in the currentfinancial year and earnings accretive thereafter (both before fair valueadjustments and amortisation of acquired intangibles)2. 2 This statement should not be interpreted to mean that royalblue's earnings pershare for the current or future financial years will necessarily match or exceedthe historic published earnings per share. Strategic Rationale royalblue's Fidessa product suite is one of the most successful global sell-sidetrading platforms in the market being used by over 85% of global, tier-oneequity brokers as well as numerous smaller firms. The acquisition thereforeprovides considerable strategic benefit to royalblue, LatentZero and theirrespective customers by providing, for the first time, the potential for trueintegration of multi-asset buy-side and sell-side trading flows on a significantscale. Furthermore, with the buy-side increasingly requiring sell-side styletrading tools integrated into their investment and order management processesand the sell-side striving to deliver enhanced execution solutions to theircustomers, both royalblue and LatentZero will be able to leverage the other'sservices within their own customer base. royalblue and LatentZero also believe that the growing sophistication of tradingand the increasing regulatory burdens will continue to fuel demand forautomation of business flows in both the buy-side and the sell-side and the needfor rapid communication and information flow between the two sides will becomeincreasingly important over the coming years. With around 1,000 buy-side firmsalready sending order-flow to sell-side brokers over the Fidessa network, thereis already a compelling opportunity to integrate and extend the two product setsand this will be further strengthened through this transaction. Chris Aspinwall, Chief Executive of royalblue, comments: "This transactiondelivers on royalblue's well documented strategy to provide the best productsand services to both the buy-side and sell-side communities. Providing thisunparalleled solution to market participants will open up significant newbusiness opportunities for us across the world. We welcome LatentZero's staffand proven buy-side experience, and look forward to collectively taking ourbusiness to the next level." Richard Jones, Chief Executive of LatentZero, adds: "We are very excited at theprospect of working together with royalblue to develop an integrated buy-sideand sell-side business. The products and services that royalblue offers matchclosely what our buy-side customers are asking for and this transaction willenable LatentZero to accelerate its strategy of delivering connectivityservices, market data and analytics to its customers as well as expanding itsgeographic reach, scale and support services. The combination of our productspositions us very well in the fast moving investment and trading landscape andwe look forward to working with royalblue as we develop these opportunitiestogether." Details of Consideration The maximum consideration for the acquisition is £63 million, comprising aninitial consideration, payable at completion, of £38 million and deferredconsideration for each of the calendar years 2007 and 2008 of up to £25 millionin aggregate. The initial consideration is to be satisfied by the issue of approximately 0.85million new royalblue shares to the vendors at completion (valued at £10 millionbased on the closing mid-market price for royalblue shares on 13 April 2007),with the balance to be satisfied by £28 million cash at completion. Other thanfor certain tax purposes, the initial consideration shares will be subject to alock up for a minimum period of 18 months from completion. The cashconsideration will be satisfied from royalblue's existing cash resources. The payment of deferred consideration is dependent on the achievement ofperformance objectives related to revenue, operating profit and order intake.The maximum payable in respect of performance in each of 2007 and 2008 is £14million, subject to a maximum in aggregate of £25 million. The considerationwill be satisfied by the issue of new royalblue shares and by cash or loan notesin broadly equal measure. Other than for certain tax purposes, the deferredconsideration shares, which will be a maximum of 0.85 million shares, will besubject to a lock up for a minimum period of 12 months from issue. The completion of the acquisition of LatentZero will occur after the processingof share option exercises by LatentZero employees. Completion is expected tooccur by 27 April 2007. Arma Partners LLP acted as financial advisor to royalblue group plc and itsBoard of Directors in this transaction. Financial Technology Partners LP and FTP Securities LLC (together "FT Partners")acted as strategic and financial advisor to LatentZero and its Board ofDirectors in this transaction. enquiries: Chris Aspinwall, Chief Executive James Melville-Ross/Haya Chelhot, Financial DynamicsAndy Malpass, Finance Director www.fidessa.com Tel: 01483 206300 Tel: 020 7831 3113Fax: 01483 206301 Fax: 020 7831 6341 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fidessa Group