Nadeem Syed sat down with Alex Hamilton to map out the year’s most talked-about merger. With transformative banking, symbiosis and 1+1 sometimes equalling 3, Finastra is charting its path to the stars.

It’s safe to say that Nadeem Syed, CEO of Finastra, has been a busy man in the past few months. Seeing through the creation of the world’s third-largest financial software firm is bound to give you a few sleepless nights, yet with the two companies being so complementary, he says, the process was easier than he expected.

“The industrial logic of this merger has been apparent for quite some time,” Syed tells me. “I’ve had a number of interactions with Gerard (Schmid, CEO of D+H) over the last few years because the two companies are incredibly synergistic. When we saw the opportunity, we had to go for it.

“I’ve been in the software industry for 30-odd years and very rarely are two firms that complementary,” he said. Misys, he adds, has always had a great representation among the top banks. “48 of the top 50 banks are Misys customers. If you look at the revenue mix, 83% of Misys revenue used to come from the rest of the world and 17% from the US and Canada. D+H is US focused and built around consumer mortgages and payments. 88% of its revenue was out of the Americas and the customer segmentation placed a lot of its clients in the lower end of the industry.” That type of non-existent overlap made the deal a no-brainer on both sides. In late autumn 2016, D+H announced that it would be going through a “strategic overview” of its options. Vista Equity Partners, owner of Misys, was keen to explore the option of a strategic merger. According to Syed, many at the Private Equity firm were aware of the symbiotic nature of both Misys and D+H. Vista won the bidding process for D+H and announced the acquisition and merger in March 2017. There was a small delay as D+H was moved from a publicly owned company into the private space, but the process was “sailed through seamlessly”. Syed says he’s enjoyed “every day” of the process, despite being “right in the thick of things”. He describes the deal as a “tremendous window of intense activity”. There was a fairly intense period of due diligence, admits the Finastra CEO, but once that was over things moved along nicely. “What is pretty refreshing from my perspective is that the two teams came together quite well. Even in the early days of the integration the logic was evident to everybody. The level of excitement around being the third-largest fintech company in the world and being a $2 billion business is palpable.”

That excitement is also being generated by clients. “The fact that we’re enthusiastic is great, but I prefer that our customers get excited, which is definitely the case here.” They’re seeing the opportunity, he adds, of having a single provider with the I t’s safe to say that Nadeem Syed, CEO of Finastra, has been a busy man in the past few months. Seeing through the creation of the world’s third-largest financial software firm is bound to give you a few sleepless nights, yet with the two companies being so complementary, he says, the process was easier than he expected.

“The industrial logic of this merger has been apparent for quite some time,” Syed tells me. “I’ve had a number of interactions with Gerard (Schmid, CEO of D+H) over the last few years because the two companies are incredibly synergistic. When we saw the opportunity, we had to go for it.

“I’ve been in the software industry for 30-odd years and very rarely are two firms that complementary,” he said. Misys, he
adds, has always had a great representation among the top banks. “48 of the top 50 banks are Misys customers. If you look at the revenue mix, 83% of Misys revenue used to come from the rest of the world and 17% from the US and Canada. D+H is US focused and built around consumer mortgages and payments. 88% of its revenue was out of the Americas and the customer segmentation placed a lot of its clients in the lower end of the industry.” That type of non-existent overlap made the deal a no-brainer on both sides. In late autumn 2016, D+H announced that it would be going through a “strategic overview” of its options. Vista Equity Partners, owner of Misys, was keen to explore the option of a strategic merger. According to Syed, many at the Private Equity firm were aware of the symbiotic nature of both Misys and D+H. Vista won the bidding process for D+H and announced the acquisition and merger in March 2017. There was a small delay as D+H was moved from a publicly owned company into the private space, but the process was “sailed through seamlessly”. Syed says he’s enjoyed “every day” of the process, despite being “right in the thick of things”. He describes the deal as a “tremendous window of intense activity”. There was a fairly intense period of due diligence, admits the Finastra CEO, but once that was over things moved along nicely. “What is pretty refreshing from my perspective is that the two teams came together quite well. Even in the early days of the integration the logic was evident to everybody. The level of excitement around being the third-largest fintech company in the world and being a $2 billion business is palpable.”

That excitement is also being generated by clients. “The fact that we’re enthusiastic is great, but I prefer that our customers get excited, which is definitely the case here.” They’re seeing the opportunity, he adds, of having a single provider with the banking capabilities, it becomes very natural for me to look at cash management or payments. Both can come from D+H. If we flip it and say I’m using cash management and I need trade finance capabilities it makes sense for me to look at Misys.” When you have 9,000 customers, says Syed, there are 9,000 different types of relationships that can be built upon. “It behoves us to take advantage of that relationship and present a better opportunity to our customers.” Early indications from clients are “overwhelmingly positive”. Syed states that he hasn’t had a single conversation in which they’ve asked “why are you guys merging?” Finastra is going through the exercise of evaluating the branding for the product portfolio. The goal is to create “a consistent brand” across the company. New product families will be rolled out by the firm over the coming weeks and months. “More importantly,” says Syed, “we’re working on improving the usability and visibility for customers. We’re looking at providing more seamless services and implementations to clients.” It’s deeper than the “veneer level” of the brand.

The big crunch

Is the merger the start of something much bigger strategically? Misys, although not known as an acquisitive company, has a few buyouts in its history: IQ Financial Systems in 2004, Almonde in 2005, Intesio in 2006 and the merger with Turaz in 2012. With the birth of Finastra and the significant clout that comes from such a high-profile company, will there be more cash-splashing in the future? “Look, financial software is the largest IT market in the world,” says Syed. “Within that, about 20-22% is packaged software and the rest is home-grown systems.” Among that 20% there is “incredible fragmentation”.

Finastra, FIS and Fiserv, as large as they are, do not account for the majority of a market that includes hundreds of smaller players. “As the industry matures, moving towards packaged software, you’re going to see more consolidation. That’s played out in every industry in software.” With the size and scale that Finastra has, states Syed, it can afford to be a consolidator as opposed to the consolidated. “We have an incredibly robust platform with a lot of room for growth and a lot of room for scalability. It’s created the space for us to absorb other businesses easily.” When Syed says that there’ll be “a lot of M&A going forward” I take the opportunity to ask if he means for the industry or for Finastra. “Well, Finastra is part of the industry,” he replies cryptically.

No COBOL at the core

You’ll often hear the phrase “it’s 2017” used to decry something outdated still prevalent in the modern age. I ask Syed if it’s a travesty that almost half of core banking systems still operating run on COBOL, the ancient programming language known only to an elderly cabal of coders. “I’m a firm believer that change for the sake of change is counterproductive,” he answers. “Technology is a means to an end. If you have a robust core banking system that does what you need from it – from a customer perspective – is that where I should focus my energy?

“Our view is that you have to look at the world from the perspective of your customers’ customers. Where can you enable a richer transformative experience? It’s in digital.” From a strategic perspective it doesn’t make sense to have systems still coded in COBOL as it’s not taught in schools or colleges and the new graduates aren’t going to be able to understand the back end. “Pragmatically, stability of that system in the long term isn’t viable,” adds Syed. “But is that where I should focus? Probably not. We need to focus on where the value is.”

Core banking transformations are expensive, time-consuming undertakings that are fraught with risk. There may be benefits at the end of the tunnel but there are a number of pitfalls along the way. “There are banks still embarking on these big projects but equally there are those looking for quick ROI.” Syed was recently in discussion with a major UK bank, which is currently going through a selection process for one of its core platforms. The question that was first and foremost in their mind was “I need to see value quickly”. Major banks don’t want a four-year project that then takes six years to earn a profit. “You have to pick a platform that’s evolutionary in nature and gives you the value quickly as opposed to an ROI that takes years to come back to you.”

London (and Toronto) calling

With 9,000 customers, 10,000 employees and two global locations, Finastra has opted to keep London as its main headquarters, with a secondary site in Toronto (the former HQ of D+H). An upgrade is in the works, though, with Misys’ former command centre no longer fit for purpose. Having enjoyed its Paddington vistas and easy-to-navigate (for a journalist at least) corridors, I asked where the new head office will be sited. Canary Wharf perhaps? Or the Silicon Roundabout? “We’re actually moving across the street,” he says with a smile. Finastra will take three floors in a new building that has recently gone up on Kingdom Street, Paddington. “We’ll focus on setting it up with the right branding and the right ambience.”

Is making London the global headquarters a sign of the city recovering from a Brexit shakeout? “Who knows how things are going to play out,” says Syed. “I try to stay as far away from politics as I can but there are so many variables out there right now that no one can reliably predict how things are going to go down.” Regardless, he adds, London will always be an important linchpin of the financial services world.

Even so, Finastra is a global company, says Syed. The firm does the vast majority of its business outside of the UK. London is an incredibly easy city to access, from both sides of the globe, and factors like that always make their way into the decision-making process. Had Misys not already been headquartered in London a move probably wouldn’t have been on the cards. “We were already here, though, so we doubled down.”

SIBOS is heading to Toronto this year, and the prospect is “very exciting” for Finastra. It gives the firm a chance to make an impact on its ‘home turf’ in front of the financial community.

“We are all set to make a big, big splash,” says Syed. Coincidentally, Misys and D+H were set to have their own booths at the show sited very close to one another, so that’s something the firm is now looking to take full advantage of as it presents itself as Finastra. “We truly want to make it a marquee event for Finastra.”

Since the merger announcement, Finastra has unveiled a hatful of deals. From Oman Arab Bank to the Jenius digital bank in Indonesia and Rabobank in the Netherlands. Surely business isn’t being conducted that quickly? Most of the deals were already in pipeline, says Syed, but it made sense to get them out there under the new name. “What is interesting is that there were many conversations out there which now are being tied together in our favour. They’re saying ‘we were already looking at you here and considering you here, and now you’re one company you can do both’.”

A major French bank, according to Syed, was in talks with Misys and D+H simultaneously and told them in no uncertain terms “we need you two to come together and show us your integrated proposition”. At the time the two firms were independent companies pre-merger and Syed says they had to curb the bank’s enthusiasm, asking it to wait. The bank did just that: “We had a workshop with them that on launch.”

As the interview ends Syed is keen to stress how things are looking bright: “I hope you can see the excitement on my face and in my voice.” Creating a financial “behemoth” has opened up the market and means that the coming years will be “exciting times” for all involved. It remains to be seen just how the new third-largest financial services firm can shake up the market. “Keep us on your radar,” says Syed. It’s hard to think of any in this industry who aren’t.

by IBS Intelligence
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