London-based inter-dealer broker ICAP has bought Traiana, Inc (Traiana), a privately owned provider of automated post-trade processing services to financial institutions. The agreement is conditional on regulatory approval.
The consideration for 100% of the share capital of Traiana is US$238 million payable in cash and $9 million of ICAP shares that will vest within four years. The acquisition of Traiana will be initially financed using a new acquisition facility on similar terms to ICAP's existing £350 million facility.
For the year to 31 January 2008, Traiana's annual revenue is estimated to be US$15 million (up 40% on 2007). As with other electronic businesses, Traiana is highly operationally leveraged, with a high percentage of fixed costs. The acquisition is expected to be adjusted earnings enhancing within three years and will have an immaterial dilutive effect on ICAP's adjusted earnings per share in the short term.
Traiana provides banks, broker/dealers, buy-side firms and e-trading platforms with automated post trade processing of financial transactions. Its Harmony network is used by over 50 banks, and is especially popular in FX transactions.
To Date, Traiana has invested $90 million. Its business is driven by the growth in the number of trades as each trade triggers multiple post trade events and Traiana charges for each event. ICAP says Traiana has been very successful in operating as a neutral platform in the foreign exchange market, and already iner-operates with ICAP's EBS system.
This acquisition follows a number of investments ICAP has made in post-trade services in recent years, including TriOptima in 2001 and Reset in 2006. With the expansion of electronic and voice broking there has been an enormous increase in trading volumes, says ICAP. "The market has absorbed hundreds of new participants from both emerging and developed markets through prime brokerage relationships – this in turn has created a huge increase in the pressure on middle and back offices of the banks and other market participants," says ICAP in a statement. "It is estimated that there are 500 million transactions annually in the OTC markets (ie excluding futures), which cost US$5 billion to process. Improving the efficiency of the whole process allows volumes to increase whilst removing risk and reducing costs to all market participants."
Michael Spencer, Group Chief Executive of ICAP, describes Traiana as the market leader in the automation of post trade processes in the OTC markets. "Post trade services is an area where technology innovation is creating exciting new business opportunities for ICAP and is an increasingly competitive necessity in growing market share in our broking business," he says. "More efficient post trade processing increases the velocity of trading in our markets and facilitates the adoption of electronic trading. Traiana has shown very significant growth and we now expect this growth to accelerate further, driven by a large increase in the number and size of both momentum and macro players and algorithmic trading in the OTC markets, especially foreign exchange. There are significant further opportunities to expand and additional OTC products are being launched on the network."
Gil Mandelzis, Traiana's Chief Executive Officer, says Traiana and ICAP are well-suited. "By becoming part of ICAP, Traiana will be better able to serve our existing clients and platform partners and to more rapidly expand the range of post-trade services we provide," he says. "By working together we will give our clients and the ability to grow even faster and to provide a higher level of service to their clients."
Following the acquisition, the senior management and founders of Traiana, including Gil Mandelzis, Chief Executive Officer, will remain with the business within the ICAP Group. Gil Mandelzis will report to Mark Yallop, Group Chief Operating Officer of ICAP.