Interactive Data Corporation has announced its intention to acquire the majority, at 64%, of NTT Data Financial Corporation (NDF) from NTT Data Corporation for 1.9 billion yen, or approximately US$20.2 million, in cash. The two firms have been redistribution partners for more than 14 years but Interactive Data made the decision to have a direct presence in Japan as part of its plan to accelerate its growth in the region, according to Jim Farrer, managing director of Interactive Data Asia Pacific.
“We felt it was important for Interactive Data to have a strong and direct presence in the world’s second-largest economy,” explains Farrer. “Moving from a distributor model to an ownership model in Japan is an important milestone for us. Interactive Data and NDF have had a successful and longstanding relationship over the past 14 years, and share a common approach to building long term, trusting relationships with our clients. We believe that acquiring NDF will enable Interactive Data to accelerate its growth in Japan and make progress toward our objective of being the first choice for financial market data and related services in this market.”
“Needless to say, we have long aspired to operate in Japan with a more direct presence so we were very pleased that our relationship with NDF will evolve from a distributor model to an ownership one,” he continues.
“It is important for Interactive Data to have a strong and direct presence in the world’s second-largest economy,” adds Stuart Clark, president and CEO of Interactive Data Corporation.
The decision is in line with Interactive Data’s overall global growth strategy, says Farrer, who indicates that the vendor will continue to seek additional acquisition opportunities in the region. However, the vendor will also continue seeking to forge new strategic alliances with local third parties in order to better serve its Asian customers.
The NDF transaction is expected to be completed by the end of 2008, contingent upon customary closing conditions. Once the deal has been approved, NTT Data Corporation will retain a 10% interest in NDF and minority shareholders, who collectively own 26% of NDF, will also be able to tender their shares. Interactive Data says it plans to acquire the remaining equity of NDF over the coming years.
NDF, which is based in Tokyo, is a provider of securities pricing, reference data and related services to the Japanese financial markets. Interactive Data and NDF have been partners in a redistribution relationship in Japan for more than 14 years, providing financial institutions with global end of day securities pricing, evaluations and reference data for investment operations, including portfolio valuation and accounting.
The vendor hopes that by combining NDF’s knowledge of the Japanese market with Interactive Data’s experience, it will be able to directly provide financial institutions in Japan with a broader range of financial data and services, including fixed income analytics, valuations of complex financial instruments and indicative valuations of exchange traded funds (ETFs) and other related structures. After the transaction is closed, Interactive Data plans to change the name of NDF to Interactive Data Japan KK, while retaining the personnel and operating the business in a manner consistent with current practices.
“Interactive Data looks forward to building on NDF’s strengths of high quality services, in-depth market knowledge and responsive client support to expand the range of content and services that we can provide to Japanese financial institutions,” says Farrer. “By evolving the range of services offered and covering a wider group of asset classes, we expect to be able to offer Japanese financial institutions greater efficiencies in the financial data services they obtain from us.”
According to Farrer, the vendor expects that the majority of integration activities will proceed quickly, although certain elements of this process will take longer than others. “Organisationally, the Interactive Data Japan KK business will become part of the broader Interactive Data Asia Pacific business. NDF currently has 22 employees in Tokyo. We currently expect that these employees will continue to be a key part of the business in Japan. Iwao Ohata, NDF’s president and CEO for the past 14 years, will continue to lead this business after the acquisition is complete. We plan to maintain NDF’s Tokyo office and operations. We intend to work closely with NTT Data Corporation for a smooth transition of the business in Japan,” he explains.
Based on the unaudited financial statements provided to Interactive Data, NDF generated revenue for the fiscal year ended 31 March 2008 of approximately US$11.7 million with operating expenses of approximately US$8.8 million, which includes depreciation and US$4.4 million in royalties payable to Interactive Data Corporation. Based on the contractual parameters of Interactive Data’s existing relationship with NDF, royalty revenue generated through NDF has been classified as US revenue for the company, but once the acquisition has been completed, these revenues will be classified under Asia Pacific.
Assuming the transaction closes before the end of 2008, Interactive Data anticipates that the transaction will not have a material impact on 2008 results. The transaction is expected to be cash flow positive but earnings neutral in 2009, and, through a combination of planned revenue growth and operational synergies, accretive to earnings in 2010.
The vendor is planning a significant push in the Asian market over the next few years and this deal is only the beginning, says Farrer. “Interactive Data has more than 300 clients across the Asia Pacific region, including many of the region’s largest financial institutions. We plan to grow our client base by expanding our offerings to encompass global enterprise-wide services, with the desired content, combined with dedicated local support and expertise,” he says.
For the most recently announced quarter (the third quarter of 2008), Interactive Data’s Asia Pacific revenue of US$4.8 million was up 26.5% from US$3.8 million in the third quarter of 2007. Farrer attributed this primarily to higher net new business and increased usage across the region. “We intend to build upon this reputation in the Asian markets as we seek to strengthen and expand strategic customer relationships, and work to respond decisively to market opportunities,” he concludes.
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