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NEC Deal Pushes Avaloq's Growth, Innovation Agenda - CEO

The international digital banking solutions firm, working in areas such as wealth management, gave more details about NEC's purchase, future strategy and how Avaloq will be affected.
NEC’s purchase of Zurich-based Avaloq was driven by growth
rather than cost considerations. Avaloq will keep its identity,
and the firm will continue pushing into areas such as artificial
intelligence and software-as-a-service channels for wealth
management, the Swiss firm’s chief executive said.
As
reported here, the Japanese conglomerate has agreed to
acquire Avaloq in a deal with an enterprise value of SFr2.05
billion ($2.23 billion), due to complete by April next year.
Further financial terms were not disclosed yesterday. The
enterprise value represents a multiple of 21.4 x 2020 adjusted
earnings before interest, taxation, depreciation and
amortisation, this publication understands. Last year's revenue
was SFr609 million.
NEC bought all of Avaloq’s
shares, 45 per cent of which are owned by US private equity house
Warburg
Pincus and the remainder by Avaloq’s management and
employees.
Juerg Hunziker, CEO of Avaloq, said the firm’s
software-as-a-service and business SaaS models will continue to
thrive and gain further momentum from the NEC deal, along with
other areas of business.
This publication asked Hunziker during a media conference call if
the SaaS model will increasingly take more share of its overall
work, versus its on-site business.
Small and medium-sized banks and wealth managers realise that
on-site installations are too expensive to run themselves. In
Europe, the cloud-based SaaS model is the default choice, and
also moving in that direction in Asia, Hunziker said. “This is
how the market wants to do business,” he said, arguing that
clients increasingly don’t want to pay a large up-front set of
costs for a licence. With the SaaS approach “we only get paid
once the software’s up and running.”
The Avaloq transaction may have surprised some in the choice of
suitor, but there has been speculation for months about the Swiss
firm’s future. In November last year a media report said that
Warburg Pincus was planning a sale in 2020 or an initial public
offering.
Hunziker said it was notable how a deal had been arranged between
a Swiss and Japanese organisation amid a global pandemic. “If I
was to do it again I wouldn’t choose doing this during COVID-19,”
he said. He said the equity market had responded positively – NEC
shares rose by 2.48 per cent yesterday.
NEC did not disclose its purchase price. Yesterday NEC said it
would give financial results for the second quarter of its
financial year ending 31 March 2021, on 29 October. Until then,
it would not give any details on financial results. Warburg
Pincus did not disclose its returns on the investment stake.
Research and development
While many firms hail the merits of “R&D”, an appealing
quality of NEC was that it spends on research as well as
development; for example, the Japanese firm has a research centre
in Heidelberg, Germany, Hunziker said.
Artificial intelligence is an increasingly important area for
Avaloq. “We have to automate more….this can only be done with AI
and strong tech,” Hunziker continued.
Avaloq’s employees are positive about the change. “I say to my
staff not to worry….rest your minds on this,” he said. There will
be no job cuts.
NEC already owns hundreds of businesses and respects their brands
and operating revenues. “We believe this is the right thing for
Avaloq.”
Hunziker added that NEC is a firm with strong a cash-flow and has
made a number of acquisitions in Europe, creating opportunities
for Avaloq.