Misys To Acquire Cats Software For $60 Million

LONDON--UK-based Misys intends to acquire Cats Software for $60 million, and, if successful, Misys could become a major provider of integrated, enterprisewide risk management products supported by a global software vendor.

The enterprisewide risk management products will be offered through Midas-Kapiti International (MKI), the largest business of the Misys Banking and Securities Division. MKI with Cats will be able to offer data warehousing as well as deal capture, position keeping and market, liquidity and credit risk management applications--all aimed at financial firms.

To complete the deal that has been in the works for the past year, Misys will acquire all of the outstanding stock of Cats at $7.50 per share; Misys is publicly traded over the London Stock Exchange. The deal, expected to amount to approximately $60 million (or roughly £36 million), is based upon a purchase price of a premium of 60 per cent over the closing price of Cats' shares on December 11. Both companies signed a merger agreement last week.

The main driver for the merger is "the belief that the market for integrated, enterprisewide risk management is about to start growing very quickly," says Rupert Soames, CEO of MKI. Through MKI, Misys will offer Cat's Carma product with the established risk management products Global Manager and Risk Vision (GM/RV) in order to achieve its goal of offering an integrated risk analytics and credit management package. Once the acquisition is final, Cats will become a wholly owned, indirect subsidiary of Misys and will be grouped under the MKI umbrella. Officials from Cats, based in Palo Alto, California, decline to comment.

Soames says he expects the risk market "will shake out very quickly" with the number of major players offering integrated credit and market risk products narrowing down to two or three. With the market moving quickly to offer integrated products, Misys had to act fast, he says.

While the shakeout is underway, MKI will have to quickly clarify how to market and sell the product lines of the merged companies.

How MKI will actually present Carma and its GM/RV products to the market has yet to be determined, says Soames. Industry observers, however, speculate that Carma could easily become the Monte Carlo risk engine for MKI's GM/RV products.

In addition, Cats markets the Catalyst front-office applications for structuring, pricing, trading and simulating derivative instruments. Summit, already part of Misys, also offers front-office products for position keeping and deal capture. MKI, too, serves the front office through its Citydealer position-keeping and deal capture system. Industry observers note that sales of Catalyst have not fared well in recent years, and it may take a back seat to the Citydealer and Summit products. Summit officials did not respond to inquiries by press time.

The potential overlaps among product lines--and the ways of alleviating them--are expected to be clarified early next year, says Soames.

MKI's own Meridian middleware, announced in the autumn, is certain to play a role in integrating such a wide range of products (TTW, September 28). "Meridian is our key technology for integrating our products between each other and with third-party systems. I would be surprised if Meridian was not somewhere [a part of the product plans]", Soames says.

The acquisition has the potential to put Algorithmics in the position of claiming to be the sole independent provider of enterprisewide risk management products, says Ben Salama, vice president of sales and field operations for Algorithmics.

The product suite of Toronto-based Algorithmics consists of Riskwatch, its market and credit risk calculation engine; Riskwarehouse, a data warehouse; Riskmapper, a data integration software tool; Risk++, a class library of pricing and analytics module; Riskbrowser, an intranet report distributor; and Historisk, a historical data-based scenario generator.

Algorithmics also recently released a financial server analytics package, dubbed Riskengine, and a collection of modules dubbed Algosuite. Riskengine repackages Riskwatch into a multi-tier application architecture based on Corba object-oriented middleware technology. Algosuite includes all components of an end-to-end solution, says Salama, such as process management, product management and data checks.

"We think the Cats/Misys merger is great," says Salama. "When I say I'm pleased about it, I mean that this is not a formula for success. Look at what happened to Infinity--both sides lost very good people. They have fallen out of the market. Their sales force is confused, the market is confused." Infinity emerged as a major risk software supplier earlier this year but went through significant growing pains (TTW, January 12 and July 27).

Misys has taken steps to make certain that there will be no such executive exodus from Cats, Soames points out. Through "incentive schemes", Misys has "arranged to secure the services of the Cats Software executives", he says. "We are absolutely delighted that they have agreed to join us," Soames says, declining to provide further details about the incentives.

In addition, Misys and MKI have no plans for a layoff, Soames says. "Quite the contrary--we're scratching our heads trying to figure out how we're going to get all of the extra people we'll need," he says. "We only buy companies that we think are well run," says Soames, who adds that the senior executives from previous acquisitions--the Frustum Group, Midas and Summit--"are still in place".

Misys' tender offer will expire on or about next January 19, say Misys officials. The tender offer documents are expected to be in shareholders' hands by today, December 21. "We hope it will be final as early as mid-January," Soames says of the acquisition. "It could be later than that."