The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Algorithmics Indicates it Will Stick to Existing Product Roadmaps Post-IBM Acquisition

IBM’s US$387 million acquisition of risk specialist Algorithmics will see the incorporation of the latter’s staff and products into the IBM fold. According to company executives, Algorithmics will add credit, market and liquidity risk solutions to IBM’s business analytics and optimisation division, while IBM will offer Algorithmics’ users extended analytics capabilities, as well as business intelligence and data management technologies that will reduce the total cost of ownership of Algorithmics solutions.

IBM approached Algorithmics’ parent Fitch Group with a view to acquiring the company and recently reached an agreement on the deal, with closure expected by the end of October 2011. Fitch is left with Fitch Ratings and Fitch Solutions, a market analytics and financial services business, but no risk solutions.

By acquiring Algorithmics as a company, rather than acquiring its products or assets, IBM will take on all its employees, a total of about 900 worldwide, and initially run the company as a separate organisation within the business analytics division of its software group. Algorithmics, which is headquartered in Toronto, Canada, reported revenue of US$164 million in fiscal 2010 and has offices in 21 countries, although pragmatic decisions on whether to sustain these separate from IBM offices are expected to be taken over time.

Laurence Trigwell, worldwide FSS executive and European industry leader in business analytics at IBM, explains: “This acquisition is a strategically important investment for IBM, a pivotal piece in our risk strategy. We were looking for heritage, domain expertise and global scale. Buying not building made sense and when we looked at the market we saw Algorithmics had great capabilities. The deal makes a lot of sense for a lot of people.”

Algorithmics’ credit, market and liquidity risk solutions are described as “high demand capabilities” by Trigwell and will line up alongside the company’s SPSS predictive analytics platform and the Cognos business intelligence unit in the business analytics division.

If there is any overlap in the companies’ product sets it is in operational risk management, which IBM covers with OpenPages, an acquisition made in September 2010, and which will be extended with Algorithmics’ operational risk skills in analytics, capital modelling and optimisation.

Both companies stress that Algorithmics’ solutions will continue to be maintained and developed according to existing product roadmaps, and that they will be sold alone or with IBM solutions. The acquisition, claim the companies, is aimed at extending customers’ options. “We are used to engaging with multiple systems, both from vendors and in-house developments. Our job with Algorithmics is to make integration as plug-and-play as possible so that it is easy for customers to implement Algorithmics and IBM products,” comments Trigwell.

John Macdonald, executive vice president at Algorithmics with responsibility for sell side business and global marketing, says: “We have over 350 clients and we don’t expect to lose any of them. We will be able to offer better services to our clients and the 40 to 50 we have already reached out to give us positive feedback about the acquisition.

“The benefits of the acquisition for Algorithmics are being part of an organisation with tremendous resources and a key focus on our area and areas around it. IBM’s technologies, data management knowledge, service delivery and product integration capabilities complement what we do.” By way of example, Macdonald cites IBM’s FileNet content manager and the company’s expertise in data modelling and data dictionaries for the financial service industry that could be used to manage data inputs to Algorithmics solutions and, according to IBM, lower the total cost of ownership of the risk analytics solutions. Similarly, Cognos could be used to consolidate and present risk data generated by Algorithmics’ solutions to a variety of users.

It is through product integration, perhaps, that IBM’s acquisition of Algorithmics could alter the profile of the risk management software supplier. While Algorithmics has, to date, focused on financial and insurance markets, IBM suggests a wider brief for its products. “By combining two leaders in analytics and risk we can differentiate our capabilities in the market and present a stronger case than existing vendors in this space,” says Trigwell. “But we will also take the Algorithmics solutions that are in financial institutions further. I can’t say now where we will take them and when, but we could, for example, look at corporate treasury and there will be other opportunity segments we will want to look at.”

The acquisition of Algorithmics is part of a US$14 billion investment by IBM over the past five years to build, both through organic and acquisitive growth, and organise its 8,000 strong business analytics and optimisation practice – and it is unlikely to be its last, according to Trigwell.

At the end of a summer in the risk management market that saw Fidelity National Information Services (FIS) fail to buy Misys and FRSGlobal quit its pursuit of Lombard Risk Management, IBM looks set for a better outcome. If the acquisition goes through, IBM will pay about 2.4 times Algorithmics’ 2010 revenue for the company, way down on FIS’s bid for Misys that valued the company at 3.3 times pro-forma revenue for the year to May 2011.

Related content

WEBINAR

Recorded Webinar: High performance market data management technologies

This webinar has passed, but you can view the recording here. The challenges and opportunities of managing market data using hardware acceleration, a deterministic approach to low latency connectivity and in-memory and other high speed databases. What are industry best practices for access to high-speed market information? How are firms using hardware acceleration? What is...

BLOG

Live at Data Management Summit USA Virtual – Day Two Keynote and Q&As

A-Team Group’s Data Management Summit USA Virtual Day Two was based on the theme of best practices for data driven strategies in today’s new normal. The day started with an informative live keynote from Arvind Joshi, director of data management at Scotiabank, on how to establish data quality for analytics. This was followed by three...

EVENT

RegTech Summit New York City

Now in its 5th year, the RegTech Summit in NYC explores how the North American financial services industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

Evaluated Pricing

Valuations and pricing teams are facing a much higher degree of scrutiny from both the regulatory community and the investor community in the glare of the post-crisis data transparency spotlight. Fair value price transparency requirements and the gradual move towards a more harmonised accounting standards environment is set within the context of the whole debate...