By Nilly Essaides & Ted Howard
The acquisition of Trema by Wall Street Systems carries on a trend begun by SunGard in the late 1990s; the end result is a less fragmented market for treasury systems.
Ask ten multinationals what treasury management systems (TMS) they use, and you’ll get seven different answers—from spreadsheets to full-fledged workstations to treasury modules of major ERPs. The highly fractured nature of the market has made it less economical for vendors to develop functionalities and support clients. It’s also made it more difficult for treasurers to make their selection.
In the wake of the July acquisition of Trema by Wall Street Systems, the answers are getting a lot more uniform, and for three reasons:
1) Firms like Wall Street Systems (WSS) and SunGard are absorbing rivals and creating bigger and more global install bases and support staffs;
2) ERP vendors are making improvements to their treasury-module offerings; anecdotal evidence suggests that more SAP users are switching to the ERP’s treasury module, after resisting changeover for some time; and
3) Finally, former niche players are rounding out their offerings (see related story).
The upshot: The TMS landscape appears a lot less choppy today than it did a decade ago.
Treasury migration path: next generation
This “defragging” trend is not new. In 1998, International Treasurer ran a series of articles on treasury systems titled: Migration Path for Treasury. The final installment was published in September 1998, at the conclusion of a month marked by two major deals:
• The merger of XRT and Cerg Finance; and
• The acquisition of ICMS International by SunGard, which has also absorbed GTM, Integrity and Quantum (see box ).
The 1998 articles forecasted greater polarization of the market, with a thinning “middle tier” of workstations. It noted that the speed of consolidation would depend on 1) just how quickly ERP vendors got their act together; and 2) how quickly “consolidators” (e.g., SunGard) managed to leverage their new-found scale.
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The G/L link For nearly a decade, the ERPs had argued that they are superior to a workstation because they come “prepacked” with a link to the corporate G/L. While that’s certainly a plus, until recently many treasurers concluded that they are loathe to give up functionality in return for that integrated approach (see related ). Plus, while linking the TMS to the ERP may be a hurdle, it’s certainly not an insurmountable one. At a recent FXpress/FIRST user conference in New York, heavy-equipment manufacturer Alstom reported that it had started using FIRST because “Excel spreadsheets were no longer adequate for cash forecasting,” according to Christian Muller, head of finance at Alstom. Mr. Muller and colleague Alain Kugelmann described the link between the ERP and FIRST in their presentation as a “challenging relationship.” However, it was a challenge that treasury was able to be overcome. “There were a few bumps in the road, but every time they were met professionally,” Mr. Muller said. |
Then, as now, the motivation for vendors to consolidate their offerings was pressure from ERPs on one end and competition from highly specialized shops on the other: “1) Customers are demanding greater integration; 2) ERPs are getting ever closer to releasing treasury modules; and 3) developers need larger resources to keep up with the increasingly sophisticated tastes of their MNC clients.”
Also, like today, bigger meant not only larger budgets, but also an expanding install base—critical for creating long-term earnings potential. “The size of the install base is truly the engine of earnings growth in the software business, and has so far been working to the ERPs’ advantage,” the 1998 analysis concluded.
The new big fish in the pond
Last month’s acquisition of Trema is really the first to create an entity of scale and functionality that may rival SunGard’s (other than the ERPs).
“Firms want to increase the breadth of their offerings,“ asserted Madhavi Mantha, a senior analyst at tech consultant Celent. “They are trying to get into a bigger piece of the treasury supply chain.”
The WSS/Trema deal “would introduce us to more opportunities,” announced WSS president and CEO Joel Mandelbaum (formerly president of Thomson Market Information Services). It will bring together WSS’s footprint among financial institutions and Trema’s corporate treasury clients, thus covering a broader spectrum.
Mr. Mandelbaum explained that he currently plans to keep the marketing, customer service and implementation teams of the two companies separate, while at the same time integrate the underlying code base. This will allow WSS “to provide sharper performance to medium and small institutions and provide economical implementation and maintenance to larger institutions.”
“Last week, Trema and WSS in their respective spaces with some overlap, were competing effectively but didn’t dominate any of them,” Mr. Mandelbaum said. “This week, after our combination, we believe we’re the market leader.” The combined firm will have about 500 employees servicing 300 bank, corporate and central bank customers worldwide.
Beating SunGard at its own game
In the wake of the deal, according to WSS (SunGard did not comment on this story, despite repeated attempts), “our combined revenues will be $120 million, within $5 million of SunGard,” said Michele Fitzpatrick, former CEO of Trema and now managing director for sales and account management for WSS. And, according to Ms. Fitzpatrick, if current trends continue that gap may quickly vanish. She explained that what would give WSS an edge is its singular focus.
“We’re the only company this size that is 100 percent focused on building and delivering infrastructure and services,” said Ms. Fitzpatrick. “Most others are much smaller; or, if they are bigger, they do a dozen other things, so they’re not as focused.”
The latter reference is clearly aimed at SunGard, which offers many solutions outside the treasury space. And even within it, SunGard has had to consolidate multiple product offerings acquired over the years into a single platform through an “overlay” strategy—AvantGard.
Whether WSS would be able to quickly offer a more streamlined product that would leverage WSS and Trema’s functionalities will be the test of its strategy’s success.
Ms. Fitzpatrick argued that compared to the SunGard solution—a product that bolts together six or seven underlying apps using Service-Oriented Architecture (SOA)—WSS would offer a more seamless integration, with STP and a single database. [Trema recently underwent a major code overhaul to ease integration issues with its previous architecture (see IT, January 2006 ).]
“Our core strategic offering in corporate treasury has been built over 14 years from the ground up as a fully integrated platform,” she said. With this in mind, WSS is betting that when it comes to a treasury’s global view of the financial supply chain, seamless integration commands a premium.
It depends on what the “market” is
Certainly, the ability to seamlessly pull off the integration of “sub-components” has been the challenge for SunGard. But that is not to say that WSS/Trema’s path is free of hurdles:
• First, the company said that it plans to keep its infrastructure separate, even as it melds code; how will that create the required scale to compete with SunGard?
• Second, in the US corporate treasury market, SunGard has the clear edge.
Bottom line: although the acquisition, “gives [WSS] a lot of weight,” said Celent’s Ms. Mantha, “SunGard is likely still the market leader.” Taking market share from SunGard (and competing with ERPs) won’t be easy. “It’s still fair to say that Sungard is the 100-lb. gorilla when it comes to the treasury space in terms of size and number of customers,” she said.