There’s a stirring of activity at Patsystems, the AIM-listed derivatives-trading software company, the latest of which is the announcement that it plans to acquire US-based Mixit, a provider of sell-side order management and execution management systems for equities and options trading.
The offer consists of £12.57m upfront in cash (£8.5m) and shares, with the potential for the purchase price to rise to a maximum of £17.57m subject to Mixit’s financial performance in the year ending 31 March 2012. Mixit ended FY 2011 (31 March 2011) with revenue of $9.2m, a three year CAGR of 37% and interestingly has been funded without outside funding from financial institutions since its inception. If completed, the acquisition is expected to be earnings enhancing in the first full financial year of ownership, excluding deal costs and goodwill amortisation.
Mixit’s key assets are a set of technologies that support institutional and broker-to-broker-based trading across Equities and Options, including a valuable routing network, real-time trading solutions and compliance offerings, plus 170 customers. Overall they complement the three lines of business Patsystems has – trading systems, exchange systems and risk systems.
What this proposed deal should do is provide Patsystems with additional market mass and financial weight, plus high levels of recurring revenue. It also sees potential for “significant margin enhancement” within the Mixit business. As Mixit lists Fidessa, Sungard, Bloomberg and Flextrade as competitors this will raise the combined profile of Mixit and Patsystems and increase their ability to compete in the market.
The proposed purchase follows a mixed FY10 for Patsystems (see Patsystems confident “ASP” investment will bear fruit) where revenues were essentially flat and adjusted pre-tax profit declined. But it has been taking action to address its issues, which have included a review of its business operating structure, an investment in “ASP” - which most people tend to refer to as cloud these days - and now this move to pull Mixit into its portfolio.