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CSC to Acquire Fixnetix To Offer Front Office As-a-Service Utility Offerings to Capital Markets Sector

Along with its Q1 FY 2016 results today (see here) CSC has announced its intended acquisition of Fixnetix, a London-based provider of front-office managed trading solutions with 120 employees and offices in London, New York, Boston, Chicago and Tokyo.

Founded in 2006, VC-backed Fixnetix provides and operates specialist trading infrastructure for ultra-low latency trading. It claims its iX-eCute microchip is one of the world’s fastest pre-trade risk systems, capable of completing 20 pre-trade risk assessments in single digit microseconds. Fixnetix has ~85 clients - investment banks, proprietary trading houses, hedge funds, start ups and exchanges - and supports global interconnectivity to ~40 co-location and proximity data centers and trading access to 90 global markets.  Fixnetix is a Vendor of Record (VOR) and Network Service Provider (NSP) for the majority of low-latency exchanges across the world. 

Four years ago, Fixnetix, which was in fast growth mode, was considering whether to go it alone or to opt for a full or partial sale, in which case it would look for partners with whom it could sell its trading solutions around the world (in particular outside the U.K.)  Then in February 2012, NYSE Technologies bought a 25% in FixNetix for £17.5m ($17.6m) in an agreement which included the option to buy the remaining 75% stake by the end of 2015. However, after NYSE Euronext was itself acquired in November 2013, IntercontinentalExchange (ICE) began to sell off NYSE Technologies businesses and in May 2014 sold its 25% stake back to Fixnetix for a token £200. Fixnetix was thus again likely to be looking for a suitor.

But this is not a banker-brokered acquisiton: the two organizations already know each other. CSC has worked with Fixnetix for the past year, providing support in a $100m, six-year deal Fixnetix won last year with a U.S. investment bank. The investment bank, an existing CSC client for its central IT, outsourced its derivatives market-making desk to Fixnetix and selected CSC to provide support and scale. The client intends to extend Fixnetix’s coverage to all its trading desks over time. The key drivers of the deal were operational cost efficiency (the bank was looking for cost savings of ~30%), increased compliance, and multiple exchange coverage. 

In 2014, Fixnetix achieved revenues of £38.2m, and for the first time in its history it achieved a positive EBITDA (margin of 1.3%), with pre-tax losses down to £2.5m. While financial details have not disclosed, Fixnetix’s valuation is not going to be too dissimilar to what it was in February 2012. The largest shareholder in Fixnetix is Delta Partners.

So what does CSC plan to do with Fixnetix?

This acquisition is part of a broader drive by CSC to develop specialist as-a-service offerings in selected commercial sectors, with capital markets a priority - although CSC does not currently have a significant presence in the capital markets sector. As part of CSC, Fixnetix will gain the scale to be able to service a larger client base, and increased ability to target market participants around the globe. CSC will gain a presence in the capital markets industry and relationships with line of business execs, including in 85 firms who are existing Fixnetix clients.

CSC intends to develop a set of IT services and managed services offerings for the capital markets industry over the next few years; possible areas of expansion include services around cyber security, and big data & analytics. Other areas of likely development include partnering with consultancies and ISVs. At this point in time, the thinking does not extend to BPS offerings.

Declining product margins and increased compliance costs are making it necessary for the capital markets industry to consider outsourcing of front-office operations, for the first time in history. CSC has the operational scale for IT infrastructure services; Fixnetix brings a client base and a specialist capability that will make a real difference in CSC's efforts to penetrate the sector. 

Rachael Stormonth and Andy Efstathiou

NelsonHall recently published a detailed profile on CSC's capabilities on Managed Security Services, available to clients of our IT Services research program. 

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