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: Maximising success when migrating big data and analytics to cloud

Migrating big data and analytics workflows to the cloud promises significant cost savings through efficient use of infrastructure resources and software that scales dynamically based on data volume, query load, or both. These are valuable gains for investment banks, but they can only be fully realised by taking a new approach to architecture and software...

BLOG

Reformis Adds Matrix IDM and NeoXam to Vendor Partner Programme

Reformis, a buy-side business transformation consultancy, continues to build out its vendor partnership programme with the addition of Matrix IDM’s cloud native data management software, and NeoXam’s Impress reporting solution. These join the company’s list of existing partners and products including IHS Markit’s EDM software, Snowflake’s cloud data platform, and Compliance Solution Strategies’ Accudelta product....

EVENT

RegTech Summit APAC Virtual

RegTech Summit APAC will explore the current regulatory environment in Asia Pacific, the impact of COVID on the RegTech industry and the extent to which the pandemic has acted a catalyst for RegTech adoption in financial markets.

GUIDE

What the Global Legal Entity Identifier (LEI) Will Mean for Your Firm

It’s hard to believe that as early as the 2009 Group of 20 summit in Pittsburgh the industry had recognised the need for greater transparency as part of a wider package of reforms aimed at mitigating the systemic risk posed by the OTC derivatives market. That realisation ultimately led to the Dodd Frank Act, and...