NEC to Acquire Warburg Pincus-Backed Avaloq for $2.2 Billion
(Bloomberg) -- NEC Corp. agreed to buy Swiss banking software developer Avaloq Group AG for 2.05 billion Swiss francs ($2.2 billion) as it makes a push into technology for the financial services industry.
The Japanese company will acquire a 100% stake in Avaloq from Warburg Pincus as well as the Swiss firm’s founder and employees, it said in a statement Monday, confirming an earlier Bloomberg News report. It beat out four other suitors in the final round of bidding, according to people with knowledge of the matter.
NEC’s purchase values Avaloq at about 21.4 times this year’s adjusted earnings before interest, taxes, depreciation and amortization, the people said, asking not to be identified because the information is private.
Avaloq provides cloud-based banking software to private institutions looking to expand their digital and wealth management platforms, with about 150 clients managing roughly $4.9 trillion in assets. Warburg Pincus owned a 45% stake in the company, with the remainder held by Avaloq Chairman Francisco Fernandez and employees.
Recurring Revenue
Warburg Pincus, whose Europe team is led by Adarsh Sarma and Rene Obermann, first invested in Avaloq in 2017. Since then, the private equity firm has converted Avaloq’s sales model from traditional software licensing, which involves a large upfront payment, to a software-as-a-service model that provides long-term recurring revenue.
NEC said it aims to create new products by combining Avaloq’s software with its own expertise in areas like biometric identification and blockchain technologies. The Japanese IT company, whose focus has been on working with government digitization initiatives, described the move as acquiring domain expertise and said it will “enter this field globally, while strengthening its business in the digital government field.”
“The goal is profitable growth on a global scale powered by a recurring revenue business model,” NEC President Takashi Niino said in an online briefing Monday.
Tech Dealmaking
NEC shares were up 2.5% at the close Monday in Tokyo, giving the company a market value of about 1.69 trillion yen ($16 billion). Fintech firms like Avaloq have been attracting increasing attention in recent years, and the coronavirus era’s push to more remote work has made cloud-based solutions more essential to continuing uninterrupted operations.
Technology dealmaking has held up relatively well amid the downturn, with more than $120 billion of transactions announced in Europe since the start of the year, according to data compiled by Bloomberg.
Barclays Plc and Goldman Sachs Group Inc. advised on the sale. Completion of the deal is expected in April 2021, subject to regulatory approval.
(Updates with details on bidding process from second paragraph)
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