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Royalblue scores big fat zero with Gartner

2 20 April 2007 1 comment

Paul Penrose

Head of Research

Finextra

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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Finextra50 fintech index

The Finextra50 Financial Technology Index is a free-float value weighted index of the world's leading companies that provide technology-based products and services to the financial services industry. It was set at an indexed value of 100 at market close on Friday 4th May 2007. This is a community for discussing the index, its movements and wider M and A activity in the fintech world.

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Comments: (2)

Simon Barnby CMO at Archax

23 April 2007

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.

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Paul Penrose Head of Research at Finextra

Author 27 April 2007

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.

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Paul Penrose

Head of Research

Finextra

Member since

06 Oct 2006

Location

London

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