Why do staff fear takeover of Scottish fintech star?
FEARS about what the takeover of Scottish businesses by investment firms will mean for Scotland heightened last week even as Rishi Sunak left generous tax breaks for wealthy financiers in place.
Edinburgh-based fintech star Nucleus Financial published the terms of a £145 million takeover it is set to agree, which has provoked “significant anxiety” among employees about what it will mean.
The proposed takeover of Nucleus underlines the scale of what the business has achieved as a pioneer in the emerging financial technology industry.
Nucleus provides online platforms that investors can use to manage their portfolios. Demand for platforms is booming as people are required to take more responsibility for saving for retirement.
Nucleus has around £18 billion assets under administration and employs about 400 people, including over 100 in Glasgow.
The 188p per share offer by a rival platform business, James Hay, is pitched at a big premium to the price the shares fetched before a range of firms expressed interest in December in bidding for Nucleus.
James Hay, which is backed by the Epiris private equity business, won the day.
In an appendix to the document detailing the terms of the takeover published last week, it was noted that Nucleus staff could see the commercial sense in combining the firm with James Hay.
However, a People Representative Group convened by Nucleus in accordance with regulations said the plans outlined by James Hay rang very loud alarm bells.these concern James Hay’s proposal to rationalise the combined central functions, which is likely to result in redundancies, and to have FNZ take over responsibility for the provision of the platform technology the enlarged group will use. Around 230 of the 400 staff at Nucleus will transfer to FNZ, which has offices in Edinburgh.
The PRG reported: “There is significant anxiety within the staff body regarding both the move to FNZ and the review of the central and HQ functions”.
The takeover document includes reassuring statements about how much value James Hay places on the skills and experience offered by Nucleus staff and the fact it does not plan to close any offices. While James Hay has offices in Salisbury, the document states the company will have no single headquarters.
But emollient words may not do much to settle the nerves of worriers.
The loss of listed companies does more than bruise the national ego. As well as triggering job losses at the firms concerned, it can deprive Scotland of a valuable source of work for the key professional services sector.
Glasgow temporary power giant Aggreko’s directors last week recommended a £2.3bn takeover bid by the London-based TDR Capital and America’s I Squared Capital private equity firms. The Nucleus case further underlines just how much influence investors based outside Scotland can have on the country’s firms.
The offer document indicates the sale process has been driven by South African financial services group Sanlam, which has a controlling 52% shareholding in Nucleus.
Sanlam provided early support for Nucleus, for which it is set to be well-rewarded.
The enlarged James Hay/nucleus may have no single headquarters but the business will be driven from London. This is home to the Epiris private equity business, which acquired a controlling stake in James Hay in 2019, to use the business as a consolidator in the platform space.
Some will worry that Epiris will follow what is seen as the standard private equity playbook. This involves private equity funds buying up firms then squeezing out synergies to support growth in short-term earnings and allow them to exit their investments in four or five years. The implications for jobs can be grim.
With interest rates at record lows, private equity firms can use cheap debt to fund big dividend payouts by the businesses they buy.
Rishi Sunak had a chance to address anomalies in the tax system that privilege private equity investors in The Budget. The former hedge fund executive could have scrapped the generous treatment of the gains made by staff of private equity houses on their investments, under the carried interest system.
He could also have limited the tax relief available on debt interest.
He did neither.
A SCOTTISH fintech firm has hailed a hike in revenues and two major contract extensions.
Beeks Financial Cloud, which provides systems that customers can use to speed up online trading in financial products, flagged “strong progress” as it released its interim results.
The Glasgow-based firm, which also operates data centres close to leading exchanges, said that “following successful initial deployments” two high-level customers have now committed to the Beeks private cloud infrastructure, with a number of top-tier client proof of concept projects also secured.
It said: “Beeks has now completed the successful full deployment of the first stage of an annualised $1 million global private cloud solution for a global financial markets technology provider.
“While having experienced some delays due to Covid-related restrictions, the contract reached 90 per cent of its anticipated revenue run-rate by February 2021.
“Following this successful first stage, the customer has committed to extending the private cloud solution to further geographies, with the contract expected to reach $2.1m of annualised revenue, with a significant proportion of this expected to be delivered by the end of this financial year.”
It said significant further expansion of the contract is expected over the next one to two years, with additional opportunities, both directly and indirectly, also being identified.
One of the company’s other top-level customers, an open banking provider, has also expanded its contract, initially worth £1.1m over three years, to 135% of the original commitment, again with further expansion opportunities ahead.
It comes as the group reported in its unaudited results for the six months ended December 31, 2020 that revenues increased by 24% to £5.29m, against £4.28m for the same time last year.
It said underlying gross profit was up 18% to £2.59m against £2.19m.
Underlying profit before tax was down 8% to £550,000, against, £600,000 after increased investment into the business, with an unchanged proposed interim dividend of 20p.
It said operational highlights included increased investment into “people, operations and product offering, to capitalise on the growing financial service private cloud opportunity”.
It also hailed the launch of Beeks Analytics, a cloud-based Saas analytics offering following the acquisition of Velocimetrics, the Uk-based monitoring and trade analytics software company, in April last year.
It said there are solid sales in the pipeline and it is continuing to see an increase in the number of financial services organisations seeking cloud infrastructure. There has been an increase in new business sales in recent months and trading for the current financial year is positive and remains in line with the range of market expectations, it added.
It said it expects revenue and margins to benefit in the second half of the year “and beyond” from growth in existing and new customers.
Gordon Mcarthur, Beeks’ chief executive, said: “Current trading is positive and we have entered the second half of the year with a solid pipeline of opportunities, supported by a significantly expanded business, increased customer base, broadened product offering and continued growth of our existing Tier 1 accounts. We have seen increased demand for our offering during the second half of the year to date, giving us confidence in our ability to service a wide range of financial services organisations across different geographies.
“Whilst we continue to assess the ongoing impact of Covid-19 on our business and operations, we are confident that Beeks is poised for considerable growth within a rapidly developing market.”
Shares in Aim-listed Beeks closed down 2p, or 1.77%, at 111p.
Beeks is poised for considerable growth within a rapidly developing market.