While it may not be the biggest transaction, Colt’s agreement to acquire a majority stake in MarketPrizm, which finally materialised this week after months of speculation, gives the UK telecom services provider some teeth with which it hopes to bite off a larger chunk of the trading connectivity marketplace.
No cash will change hands as part of the ‘binding agreement’ announced May 4, with Colt taking a €10 million hit in 2011 to reflect “the costs of the transaction and funding the business.” In return it gets a company with a connectivity platform that can help Colt’s proximity hosting clients handle low-latency market data services and hosting of trading applications.
This sits well with Colt’s other recent initiatives in this area. Chief among them is a strategic relationship with the London Stock Exchange to provide proximity hosted access to the LSE’s various trading platforms located in its City of London data centre. Under this arrangement, Colt will host client applications at its own London data centre, offering sub-100-microsecond roundtrip latency access to LSE platforms.
The deal to acquire MarketPrizm from Instinet has been bubbling under since before Christmas, when word first got out that the former Chi-X Global Technology (Chi-Tech) business was being effectively dismantled.
For its part, Colt reckons “The integration of market data in the Colt portfolio will enable Colt to address the key business drivers of its financial sector customers and moves it deeper into the managed services area.” In a sense, the strategic reasoning behind the transaction has much in common with Interactive Data’s acquisition of 7ticks, which gave it a hosting and connectivity capability to complement its market data distribution offerings.
Colt’s ongoing funding of MarketPrizm, meanwhile, is expected to finance expansion into new asset classes and geographies in both EMEA and Asia Pacific. Indeed, it appears that Instinet’s retention of a stake could pave the way for more activity in Asia Pacific, where Colt has a sister connectivity provider, KVH of Japan.
The acquisition deal will make Colt the majority shareholder of MarketPrizm. Instinet, previously 100% owner via Chi-Tech and its Chi-X Global parent company, will retain an unspecified minority stake. While a statement reckons “MarketPrizm has an existing base of financial sector customers,” the only officially published clients we are aware of are UBS Investment Bank and ABR Financial.
On completion of the transaction, MarketPrizm CEO John Lowrey will stand down to take a slot on the company’s board. Taking his place as CEO is Tanuja Randery, who has been with Colt since 2004, most recently as head of its Global Business Division. Before joining Colt, Randery was previously vice president of strategy at EMC and associate partner at McKinsey.