Our Analysis of Intertrust’s Acquisition of Viteos
Intertrust announced on June 18, 2019 that it bought Viteos for $330 million.
Quick! That’s one word we would use to describe this transaction. Stephanie Miller, Intertrust’s CEO, started her job just little over a year ago. Within a few months in her role, Intertrust announced a technology-partner tie-up with Viteos. Then, a short four months later, that partnership turned into this sizable acquisition.
This blog post provides you with our short summary, analysis, and commentary on this pretty important acquisition. It reinforces our view that corporate service providers must take quick an decisive actions to modernize their operations using the best technological solutions available to them and their clients. Those that do not adapt and innovate at previously unimaginable speed will face serious commercial and operational challenges much sooner than most would expect.
Stock up 4.5% on the news, reaching a 2-year high!
And investors seem to agree. On the day of the announcement Intertrust shares shot up almost 4.5%, from €17.41 to a high of €18.21, a price not seen since May 2017! It’s hard not to understand why. Not only are the buying a very profitable, and well-run “shadow admin” business (which is essentially what Intertrust also does), but the icing on the cake is Viteos’ technology and innovation capabilities.
According to Intertrust, their strategic rationale for this purchase lays in their ambition to accelerate their strategy of becoming a global leader in tech-enabled corporate and fund solutions. They will absolutely benefit from Viteos’ strong US-based and Private Equity Admin profile.
Here are 3 things that stood out to us:
- They’ve just picked up over 130 developers.
- In the very near term (by 2020!), they expect to realize 80% of $22 million of ‘synergies’.
- Acquisition of solutions that incorporate leading-edge technologies, such as robotic process automation, blockchain, and optical character recognition.
130+ New Developers. We’ve always said that if a company could afford to hire their own development team that they should. By doing so companies build the solutions they and their clients need – no more, and no less. With this addition, expect to see rapid development of advanced technological solutions not just in fund admin, but also all other business lines and support units. This is something the entire industry needs to keep a sharp eye on – it’s the future.
$22 Million in Synergies. Okay, we’ve seen the numbers and they are a mix of revenue and operational synergies. What strikes us with this number is how close it compares to Intertrust’s total IT OpEx spend. With a bit Excel work, some basic assumptions, and we conclude that this probably doesn’t bode well for Intertrust’s IT department. We can imagine most, if not all, IT functions shifted to Viteo’s Centre of Excellence — in India.
Leading-Edge Tech. It’s worth considering what the impact will be on the industry if Intertrust unleashes the “hounds of tech” onto the trust and corporate services world. The technologies that Viteo’s apparently brings to the table with this acquisition (Robotic Process Automation, Blockchain, Optical Character Recognition) are some of the most disruptive technologies available today. For example, the adoption of blockchain technology within their capital Markets business would have headline-worthy impact.
Who is Viteos?
Founded in 2003, Viteos is a technology company with a focus on fund admin software. Although billed as a US-based company, less than 30 of their 700+ workforce are actually in the US, with most employees based in India.
Interestingly, Wipro (one of the world’s India-based IT and process outsourcing shop) tried to buy Viteos near the end of 2015 for $130 million, only to pull out of negotiations seven months later.
As with any major acquisition, the ability to execute on plan will determine if this purchase delivers the value that investors expect. The rest of the industry should pay attention to this major (and quick!) event because it signals the future of this industry: An acceleration towards innovation not just in technology, but also business models. This acquisition certainly has all the ingredients to truly disrupt the global trust and corporate services industry.
Sources: Intertrust Press Release, Intertrust’s Investors Presentation, NBC, Owler, Crunchbase (Viteos, Intertrust), Business Standard