Until recently, no one got excited about capital markets enterprise software. So how did it take off its glasses and suddenly become the sector everyone wants to take to prom?
The Cinderella story is Trading Technologies (TT), whose owners recently sold a controlling stake to Thoma Bravo (with 7RIDGE still holding a piece) in a deal valued at just over $1 billion.
So why did some of the largest private equity firms show up to court a company in a sector that most had written off as stale? I have some perspective because, as former president of TT, I started to get more than a few phone calls during the process.
One thing’s for sure: PE sponsors don’t write billion-dollar checks unless they’re convinced they can 3x to 4x their money within four to six years.
So at first glance there’s a big disconnect, since everyone “knows” this is an ultra-mature vertical considering:
- Every capital markets firm on the planet already has an E/OMS vendor — hence no new customers;
- Price increases average only single digits annually; and
- Organic growth in traditional asset classes traded via central limit order books is modest.
And yet TT found itself at the center of a hot auction.
The answer is simple: more M&A. There’s no path to triple the size of company like TT without transformative dealmaking, and industry insiders should get ready for a whole new wave to follow, from this fall through 2026.
What Happened?
What accounts for this big uptick in terms of attention?
First, the industry’s long-time serial acquirer – ION Markets – recently stubbed its toe and may need to take a step back. From 2014 through 2024, ION made over a dozen significant acquisitions including Wall Street Systems (2014), Fidessa (2018), Acuris (2019), and DASH Financial Technologies (2021), often paying premium multiples. But as a roll-up fueled by leverage, ION found itself rebuffed recently when it tried to raise €600 million in preferred equity, opening up the playing field somewhat for potential acquisitive rivals.
Second, the incumbent capital markets software providers are both (a) feeling the weight of big earnings growth expectations, and (b) sitting on huge war chests ready to be deployed.
The strategics are massive – BlackRock ($174 billion market cap) with Aladdin, State Street ($31 billion) with Charles River, Nasdaq ($33 billion) with Calypso and Adenza – and more importantly their stocks are trading at or near record multiples and available as acquisition currency. Meanwhile, the private equity sector has stockpiled more than $2 trillion, which lets them buy pretty much whatever they want.
Third, competitive tensions are rising between what I’d term the strategic “farmers” versus the sponsor-backed “ranchers,” driven by their differing strengths and needs.
The strategic farmers are armed with massive brands, global distribution, and “department store” product breadth for one-stop shopping. But all too often they’re weighed down by slow innovation, low risk tolerance, and underweighted capital investment.
The sponsor-backed ranchers, on the other hand, frequently excel in disruptive innovation and risk taking, together with a willingness to deploy capital quickly to take market share. But while they typically benefit from great product depth, they’re too often boutiques in terms of the breadth of their offerings.
What both sides have in common is (a) sky-high growth expectations, and (b) the need to add new assets and capabilities soon to find that growth given the currently somewhat tepid organic growth outlook.
Looking Ahead
What happens next?
At a high level, the consolidation to date means that the field of genuine targets isn’t as large as it once was. For example, SS&C bought Eze in 2018, Deutsche Borse snapped up SimCorp in 2023, and Nasdaq acquired both Calypso and Adenza in 2023.
That said, the market most likely sees two flavors of deal in the months and quarters ahead.
First, big-ticket platform plays that dovetail with incumbent offerings, essentially “buying growth” and squeezing out costs. TS Imagine represents the poster child for this category, bringing E/OMS, portfolio and risk management to the table in addition to its substantial revenue. Other names in this category include FlexTrade (multi-asset E/OMS, though not M&A oriented to date) and SmartStream (reconciliation and post-trade, with an owner who reportedly explored an exit in 2022).
Second, bolt-on high-growth plays for bringing next-gen trading models and/or fast-growing asset classes into the mix.
One likely path would be new fixed income model tech plays moving beyond the mature RFQ/RFS models previously pioneered by Tradeweb and MarketAxess. This includes smaller firms like Ediphy, Adroit and OpenYield.
Another promising avenue would be fast-growing digital asset infrastructure, where new legislation out of Congress, big wins on the institutional side (e.g., BlackRock with IBIT), accelerating adoption on the e-retail side (e.g., Fidelity), and the marked potential for tokenization all suggest significant growth potential from this early-innings asset class.
Fresh off of TT’s impressive ‘Crane Kick’ moment, the capital markets software sector suddenly looks a lot more interesting.
About the Author
Michael Kraines is CFO of Solidus Labs and former President of Trading Technologies. He previously worked as an investment banker at Sandler O’Neill and Wasserstein Perella and as a corporate attorney at Kirkland & Ellis.
The views expressed are his own and do not represent those of Solidus Labs.
