ConvergEx's Crown Jewels for Sale
Traders Magazine, October 2012
ConvergEx, an institutional brokerage and technology firm that has been on an acquisition binge since launching in 2006, is looking to divest two prime assets that could fetch the company as much as $1 billion, according to sources.
The deal would package Eze Castle, an order management system popular among hedge funds, and RealTick, the firm's execution management system, sources said. Other software assets might also be part of it, but the brokerage unit is not for sale.
ConvergEx declined to comment.
In July of this year, Moody's downgraded two tranches of the firm's debt. Moody's blamed the trading slowdown and the uncertainty surrounding regulatory investigations into a subsidiary. Its senior secured first lien term loan was downgraded to B2 from B1, and the second lien term loan fell to B3 from B2.
"People are really interested in this," one source said. "There are a number of players taking a look, and Eze is the main attraction." Goldman Sachs is ConvergEx's investment banker, and sources said a $1 billion price tag is what ConvergEx is looking for in a sale. Any transaction would give early investors a liquidity event, sources said, and allow them to cash out, if not entirely, as least partially.
Eze is said to be the "crown jewel" of ConvergEx. It has been the cornerstone of the firm since Eze Castle Software merged with the Bank of New York's brokerage division to form BNY ConvergEx Group. From the beginning, ConvergEx's goal has been to build a technology provider in the brokerage industry, making it less dependent upon commission business.
ConvergEx's corporate finance profile has been a roller coaster over the last year. It filed for an initial public offering in May 2011 that would have raised $400 million. The IPO never happened. Two months later, CVC Capital Partners announced it was taking a stake in the company that would have made it the largest shareholder-one that valued ConvergEx at $1.9 billion.
But that deal never happened. CVC pulled the plug last December. The investment would have taken out private equity firm GTCR's one-third stake, as well as a portion of Bank of New York's one-third stake. ConvergEx management owns the other third of the company.
CVC bailed out of the deal, at least partly, due to an investigation by the Securities and Exchange Commission and the U.S. Department of Justice into a company subsidiary, ConvergEx said in a press release at the time. The subsidiary was an overseas unit that did transition management. ConvergEx closed the unit. The investigation continues to linger and has not been resolved as of yet.
Any sale would likely involve a financial buyer like a private equity firm, though strategic buyers are taking a look. One person familiar with trading platform valuations said Eze and RealTick would bring in between $800 million and $1 billion. Together, the two software concerns' earnings before interest, taxes, depreciation and amortization-EBITDA-are currently about $80 million.
However, the source wasn't sure how much demand an EMS like RealTick would inspire, given the trading slowdown. Running an EMS is an expensive proposition. However, he said RealTick's EBITDA is between $12 million and $15 million a year. RealTick was purchased from Barclays in December 2010 for $79 million, according to ConvergEx's S-1 filing with the SEC.
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