On Nov. 22, FFastFill announced a deal to acquire WTD Consulting, Inc, a Chicago-based technology consulting and software solutions business for up to $12 million. The deal enables the company to complete the customization of its back-office product, Eclipse, for the U.S. market and is expected to boost FFastFill’s U.S.-based business. John J. Lothian & Co. editor-in-chief Jim Kharouf spoke with Purdey about the deal, the firm’s latest earnings and the impact from MF Global’s bankruptcy on the independent software vendor (ISV) space.
Q: Why did you decide to do the WTD acquisition?
A: We’ve known them for a long time. We’ve partnered with WTD on a couple customer deployments. Some of our technology has been integrated with their technology. We found it a very compatible fit. On the strategic level, we achieve significant U.S. scale. We’ve been underweight in the U.S. and we want to increase that, and with post-trade processing, these guys are the experts.
Q: Ultimately, how will FFastFill be changed with the WTD acquisition?
A: This is a big play for Eclipse, our back-office product, to enter the U.S. market. It’s got a good following in Europe and some installations in Asia. It’s really the final frontier for the product. And we wanted to come on board with the people who understood that market intrinsically and will do it right the first time. And they have credibility to do the installations that can take the product forward.
Q: How is this deal going to impact FFastFill as a company?
A: Broadly speaking, the U.S. footprint will increase. WTD also has a footprint in Europe and Asia. But also, the global integration and implementation of Eclipse will increase and improve. As we know, our customers are global and we’ve got to be able to service them in every geography. And we’ve been able to to do front- and middle-office technology globally. We’ve been able to do back-office in Europe and Asia, so this is the final functional piece with the U.S.
Q: FFastFill also reported flat revenues through the first half of this year today and a slight loss of £107,000. What is the climate right now for ISV services?
A: What I would stress is that there was a fair amount of replacement revenue that needed to be done. In the first half of last year, there were still some customers that had gone out of business due to the economic crisis. So we’ve actually grown quite significantly within those numbers. The software as a service numbers rose 11 percent, but the underlying increase is higher than that, so the replacement revenue has been an important component of it.
The climate is interesting. There is still significant opportunity for modern technology architectures. We’ve invested a huge amount of money over 10 years in building the most modern technology that is out there. We are the only vendor that has completely thrown away everything we started with and rebuilt it from scratch. We did that between 2003 and 2005, and we’re really now leveraging the benefits of that in the front- and middle-office. In the back-office, we’re the only true relational database technology, so it does mean we are able to integrate and deploy this quicker and more effectively.
Finally, I’d say software as a service wins in a downturn economy. So customers do not want huge implementation cycles. They don’t want huge cap-ex budgets. They want to be up quickly and able to trade. Especially with the disruption we’ve seen in the past few weeks, we’ve actually seen a reasonable opportunity service out of all that because we can get people up and running quickly.
Q: We are also looking a new regulatory environment. What impact is that having on your business?
A: It’s a huge opportunity for us, and part of the rationale for the WTD deal. WTD has significant expertise in the OTC world and have done work for the exchanges and firms in the U.S. And we are excited about what the regulatory environment can do to drive innovation in the back-office world.
Q: What impact do you see MF Global’s bankruptcy having on FFastFill, and what impact will it have on the ISV space?
A: It’s a very bad thing from an industry perspective. The industry will have to work hard to restore credibility with those that have been affected by the bankruptcy. From our perspective, we had about £300,000 ($468,000) in revenue from MF Global, and have replaced that revenue already through other opportunities that have come out of it. And we do see, at times of disruption, it does prompt people into thinking about what they are trying to do. They are thinking about better data flows, better data models and more modern technology. It’s not a great thing for the industry at all; but out of this, other firms will be built and take share. We feel very comfortable that we have the right technology base to make those guys work as well as they possibly can.