Japan’s NEC has agreed to buy Switzerland’s largest software provider to banks for SFr2.05bn ($2.2bn) in its biggest foray into the global fintech space.
The sale of Avaloq to the Japanese technology group ends a three-year investment by Warburg Pincus, which paid close to SFr300m for a 35 per cent stake in 2017. The private equity group now owns 45 per cent of the privately held group, with the rest in the hands of Avaloq’s founder Francisco Fernández and its employees.
NEC’s acquisition follows years of restructuring involving the loss of 3,000 jobs and the offloading of unprofitable businesses. The deal, which is expected to close by April, builds on NEC’s purchase last year of KMD, a Danish IT services group, for Dkr8bn ($1.2bn), and its £475m takeover of UK’s Northgate Public Services in 2018. Earlier this year NEC also sealed a capital tie-up with Japan’s largest telecoms operator NTT to better compete in the global race to supply 5G equipment.
Shares in NEC briefly rose more than 2 per cent on Monday morning following the announcement of the deal. Avaloq has about 2,300 employees and serves more than 150 banks and wealth managers in financial centres including London, Frankfurt and Paris. At an online news conference, Takashi Niino, NEC’s chief executive, said the company planned to use its blockchain and facial recognition technologies to serve the security and privacy needs of Avaloq’s clients.
The fintech deal comes as the pandemic has accelerated the trend towards digitalisation both in the banking sector and within government agencies.
Though richly valued at around 20 times adjusted earnings before interest, tax, depreciation and amortisation, Takayuki Morita, NEC’s chief financial officer, argued the purchase price was justified by Avaloq’s expected annual growth rate in ebitda of 15 per cent.
The Swiss group made losses last year partly due to investment costs in data centres. It recorded a net loss of SFr29.8m in 2019 while revenue increased 6.4 per cent from a year earlier to SFr609m, 70 per cent of which came from Europe. In a statement, Juerg Hunziker, Avaloq’s chief executive, said the deal would help the Swiss group expand its geographical footprint beyond Europe.
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