Established core banking technology providers are acquiring competitors to tap into their technological resources, according to Matthijs Aler, chief executive officer of systems vendor Ohpen.
“We have seen quite a lot of core banking mergers and acquisitions in the past few years. Incumbent players are seeking to accelerate their own product development processes by looking at the ‘buy’ option instead of the ‘build’ option,” says Aler. “Vendors that have a unique expertise or solution will likely experience M&A approaches from incumbent vendors who have fallen behind the curve a little and are seeking to catch up rather than rebuild from scratch.”
In 2014, Gartner listed 19 core banking vendors in its Magic Quadrant rankings. In 2018, it listed just eight. Earlier this month, French technology conglomerate Sopra Steria announced its intention to acquire compatriot vendor and competitor SAB.
“Even big companies with a lot of resources cannot create something from scratch like a core banking system with an acceptable time-to-market for its stakeholders,” says Aler. “I think specialized companies that can bring certain knowledge or certain technology will continue to be sought by these firms.”
Sopra Steria has a long history of mergers and acquisitions. In October it purchased Sword Apak, the lending solutions wing of UK-based Sword Group, stating at the time that the deal would “round out Cassiopae’s loan financing with a new solution”. Cassiopae itself was purchased in 2016, in a deal described as a “synergetic, strategic partnership”. The two firms had held a partnership deal since 2011.
In 2012 Sopra bought a majority stake in Belgian firm Calatay & Woulters, which it merged with another acquired company, Delta Informatique, to create the Sopra Banking Software subsidiary. The firm stated at the time that the deal was designed to position Sopra “among the premier-ranking software publishers”. That subsidiary will now be taking a majority stake in SAB, with an option to buy the rest of the shares in 2020.
Aler adds that deals such as Sopra’s impending purchase of SAB can often lead to concern among the acquired technology vendor’s clients. “Most of the time the buyer wants to realize certain synergies with the company that is being taken over. That can often mean migrating existing users to a new target platform. Usually that’s the platform of the buyer but that could be the inverse.
“Migrations are a phenomenon that the users are not necessarily waiting for. A migration doesn’t always add new functionality or improve processes, while requiring a lot of time and project management on both sides.”
Sopra operates a digital banking platform, the Digital eXperience Platform, which runs across all of its acquired core banking systems.This article was updated on May 5.