Why Fidessa may not be a takeover target
Investors are wrong to hope for private equity bids
Investors hoping to cash in on a takeover of trading systems supplier Fidessa (FDSA) look likely to be disappointed. At first glance the £884m Woking head quartered business looks a classic target for private equity buyers yet we don’t think a deal will happen.
Fidessa is a global leader in trading systems to financial institutions. It has customers all over the world and earns more than two-thirds of its revenue outside the UK.
Bristling with balance sheet strength (it is expected to have £75m to £80m of net cash by the end of the year) on which private equity could load debt, Fidessa also has super cash generation. Nearly 90% of its revenue is recurring.
So why hasn’t the company fielded bid interest? There have been rumours in the past, most recently from the US in April 2016, but a major snag is the limited scope to bolster organic growth with acquisitions.
Large financial institutions not currently Fidessa clients tend to run their own inhouse built analysis and trading engines. Fidessa remains hopeful that new financial regulations can accelerate its own growth but doubts remain.
In the meantime, low to mid-single digit revenue expansion remains on the cards. That makes the shares at £22.86 look expensive on 23.7 times forecast earnings for 2018. (SF)