Swiss banking software and services provider Avaloq has got a 300 million Swiss franc ($300 million) injection from private equity firm Warburg Pincus in what the group described as a first step towards a potential public listing.
The deal, which values Avaloq at more than 1 billion Swiss francs, will give the New York-based firm a 35 percent stake in the Swiss group, the partners said on Wednesday.
Banks are turning to outside software providers for help in running core banking operations to cut costs, meet stricter regulations and fend off fintech rivals as they address mercurial consumer expectations.
Avaloq — which has wealth managers, boutique banks and a growing number of global finance groups as clients — has branched out of late, taking on more of banks’ back office work in its own service centres and opening new centres in Singapore and Germany.
“If you can offer a lower cost of operating and processing because the company does it across more than 150 banks and wealth managers with more innovative products than in-house, then that’s a win-win,” said Adarsh Sarma, a Warburg Pincus managing director.
“(Avaloq’s) biggest products are focused on wealth management, which is the largest fee generator for banks – it’s a bright spot.”
Rivals such as Temenos have grown rapidly as their clients, focused on conserving capital in the face of falling fees and low interest rates, offload more of their technology and back-end operations. But some have struggled to fulfil expanded commitments after signing major contracts.
Avaloq said it had been consolidating its back-office business in early 2016, servicing Deutsche Bank’s Asian wealth management and Hong Kong and Singapore offices, as well as six European banks.
“This deal is about being able in a controlled manner to grow again with a mature partner,” a spokeswoman said.
Warburg Pincus, with $10 billion of its total $44 billion in private equity under management invested in 90 finance and financial technology (fintech) firms, was once the largest investor in one of the world’s biggest banking technology companies, Fidelity Information Services. It pointed to its experience in helping businesses to grow.
“Their global presence … combined with their extensive experience in financial services and software and large network in the broader banking and wealth management industry will be invaluable as we enter a new stage in the development of Avaloq and its geographic expansion,” Avaloq founder and Chief Executive Francisco Fernandez said in a statement.
The group, which generated 533 million Swiss francs in sales last year, said its market is set to keep growing.
Fernandez will retain a 28 percent stake in the firm, while staff and management will retain a further 27 percent. The deal is expected to close in the second quarter of 2017 with an investment horizon of seven years.