Bravura Solutions, the wealth management software firm which is buying a UK fund technology firm, is convinced that this sector will witness further acquisition activity, seeing the industry consolidate as regulatory cost pressures mount.

Bravura Solutions, the Australia-based wealth management software firm which announced this week a rights issue to buy a UK fund technology firm, is convinced that this sector will witness further acquisition activity, seeing the industry consolidate as regulatory cost pressures mount.

On Monday this week, the firm said it will raise capital to fund the purchase of Mutual Fund Technologies, a move designed to boost its market share in the European transfer agency sector in which already has a significant footprint. The deal involves a cash consideration of £19 million (around $28.5 million).

“We see the transfer agency business as very much as a scale game. It is very important to have scale in order to achieve the necessary operational efficiencies,” Tony Klim, chief executive, EMEA, told this publication.

Bravura, which has A$1.5 trillion (around $1.36 trillion) of assets on fund platforms it supports, has made a total of eight acquisitions - rising to nine if Monday's agreement is finalized: it bought Rufus software business, a transfer agency platform it bought from The Bank of New York Mellon, in 2006, for example. The firm also bought a similar transfer agency offering from Citigroup. Such business tends to be “very stable in terms of contracts and revenues,” Klim said.

In another deal, Bravura and Citi’s Global Transaction Services signed an outsourcing agreement for the provision of transfer agency technology services to Citi’s Securities and Fund Services business in Europe. The deal was finalised in 2008.

Klim’s region accounts for nearly two-thirds of the overall business in revenue terms. Originally born out of a managed buyout from CSC Australia, bringing with it legacy customers from the Australian superannuation pension market, Bravura has grown both organically and through acquisitions. It has a presence of 13 offices in countries around the world including Australia, New Zealand, United Kingdom, Luxembourg, Hong Kong and South Africa.

Building up

The firm is also building up its wealth management business where the Bravura platform underpins the Aviva wrap, and Nucleus, the IFA end-to-end business platform.

“The industry seems to have lost control in terms of managing the cost of operation,” Klim said, arguing for the low-cost benefits of the service he says Bravura provides.

Talking about regulatory pressures on the UK independent financial advisor market – such as from the Retail Distribution Review – Klim said that there are expected to be fewer IFAs as some are squeezed out of the sector, while the banc assurance model is likely to make headway. The RDR is a programme by the UK Financial Services Authority to raise professional standards in the IFA market.

IFAs, of which there are about 26,000 in the UK, account for about two-thirds of all retail funds sales in the UK, so the impact on the fund market from any changes will be potentially significant.

“We are going to see a drive to quality and that may mean that some [IFAs] fall by the wayside,” Klim said, alluding to the argument that any increase in regulatory costs is bound to raise barriers to entry into the sector, forcing some businesses to merge or sell up.

“The advisory [industry] at the very top end is still very much a relationship sale. It has not had to try very hard in the past in terms of administration efficiency. There is a drive these days to be more efficient and also more blurring at the edges between high-end IFAs and wealth managers,” he continued.

“We will see a convergence of administered platforms. There will be greater use of shared infrastructure. I think banks will get together and produce more joined up offerings in the mid-tier of the [wealth advisory] market,” he added.

New acquisition

Under the latest deal, meanwhile, Bravura entered into a sale and purchase agreement to acquire all the shares in MFT with a cash consideration of £19 million to be paid on completion of the deal, with two deferred cash payments by way of earn-out for another £500,000 - each subject to reaching relevant revenue hurdles.

The deal is subject to “satisfactory completion or waiver of the conditions of the acquisition, and is expected to occur shortly after allotment of the shares to be issued under the rights issue”, a statement from the firm said. The deal is expected to be accretive to earnings.

As part of the transaction, Bravura will acquire MFT’s GFAS (Global Funds Administration System) software system.  Before completion, MFT will also enter into service agreements with its existing providers, who will continue to provide a data centre, certain software hosting and related maintenance services, support and back-up to MFT after completion of the acquisition.