IFS acquires UK electronic trading firm for €24.5m

International Financial Systems (IFS), the Dublin-based developer of collateralised trading and Internet solutions for financial institutions, yesterday acquired UK company Dene International for $21 million (€24.5 million).

IFS is paying $10.5 million for Dene in three instalments in the cash and equity deal. An initial payment will be followed by an interim payment in six months and final payment at the end of 12 months. The remainder of the deal will consist of shares in IFS.

"It is split between cash and a share swap which values IFS at $117 million and it has been financed through our own cash flow," said Mr Ken Coldrick, managing director of IFS.

"Overall, the deal is subject to a 12-month iron-out. The size of the deal is related to performance over the year. The cash payments over the next 12 months will be based on sales achieved by Dene."

UK-based Dene International is one of the world's leading companies in the development and supply of electronic trading systems. Its flagship product, GATE, is a foreign exchange and money management transaction platform that can provide price distribution, automated deal pricing, transaction execution and FX order management.

Dene's GATE technology will allow IFS to fast-track the migration of its MarginMan risk management and collateralised foreign exchange trading application to the Internet, according to Mr Coldrick. The merging of the two technologies will provide client banks with greater access to FX liquidity, improve their customer services and lower their operational costs, he said.

Describing Dene as a "superb fit" for IFS, he said the company can take advantage of IFS's global sales, marketing and support infrastructure.

Mr Coldrick is forecasting combined revenues at the two companies of £13 million next year. IFS reported turnover of $4 million last year and Mr Coldrick said he expects revenue to reach $6 million this year.

While the current deal was financed from cash flow, Mr Coldrick said IFS would seek a listing on the alternative investment market early next year to finance future acquisitions.

"We are looking at other acquisitions but we need to be public to carry them out," he said.

Last year, IFS decided against seeking a listing on the Dublin and London developing companies and AIM markets. It lacked the scale to make the considerably larger leap on to the Nasdaq, or even Germany's Neuer Markt. Instead, it sought to raise capital privately, keeping strategic partners that would be valuable to the business in mind. That process resulted in a $1.5 million investment from Intel and Deutsche Bank for a 14 per cent stake.

While the initial cash investment was relatively modest, Mr Coldrick at the time said the arrangement was significant because of the positive signals both Intel and Deutsche Bank's support would send to IFS's target market.

Intel and Deutsche Bank were introduced to IFS by Technology Investment and Underwriting after it failed to generate interest among Irish venture capitalists. Mr Coldrick and his family hold a 40 per cent shareholding in IFS. Delta Partners took a 32 per cent stake following a £750,000 seed capital investment a few years ago. The Intel/Deutsche Bank deal diluted this stake to 26 per cent. In September, Standard Bank London acquired a 5 per cent stake in IFS. Ten per cent of the company is shared by the company's employees. The company's share option scheme will now be opened to Dene employees, Mr Coldrick said.

IFS said it would undertake a recruitment campaign over the next six months to increase its sales, research and development teams. The combined workforce at IFS and Dene will increase to over 120 employees by mid2001. IFS currently employs more than 80 people and has offices in London, New York, Singapore, Sydney and Manila. Dene employs 30 people at its Harrogate headquarters in Britain.

Ironically, the Dene acquisition gives IFS its first client in Ireland. AIB is among the financial institutions using Dene's GATE product. Others include Bank of America, Chase Manhattan and Natwest. IFS markets to more than 60 financial institutions, including Deutsche Bank, Citibank, ABN Amro, Australia & New Zealand Bank, Union Bank of Switzerland and Royal Bank of Canada.