The desire for integrated treasury IT solutions leads Reval to acquire Austria-based ecofinance.
Over the years, Reval’s success has been tied in large part to treasurers’ willingness to accept a best-of-breed approach to treasury software. By engaging Reval’s offerings, treasurers could get the superior hedge accounting and risk valuation functionality the company was able to deliver cost-effectively on a SaaS-subscription basis. Now the company looks to broaden that success into the treasury management system (TMS) space with its acquisition of Austria-based TMS vendor, ecofinance.
While treasurers’ willingness to integrate treasury applications has not gone away, Reval sees this latest acquisition as a means to position itself for the scenario where more treasuries look to integrated solutions with fewer third-party applications. According to The NeuGroup’s recent Phase 1 Principles of World-Class Global Cash Management developed in conjunction with Citi, this is indeed the way best practice sentiment is leaning (see IT, January 2011).
Hedging its exposure
In acquiring a TMS vendor, Reval may be seen as hedging its bets as the market moves toward more integrated treasury IT solutions. It’s an irresistible description for a company that helps its customers hedge effectively. But its functionality diversification may not be the only exposure Reval is hedging. It also can be seen as a risk-mitigation strategy for scenarios where demand for quantitative effectiveness testing declines in the face of new hedge accounting guidance.
But Jiro Okochi, founder and president of Reval said it was simply a matter of the market and “our clients were shifting back towards a single integrated solution.”
While Mr. Okochi admits that new hedge accounting guidance appears to offer more flexibility with regard to effectiveness testing, discussions with customers indicate that few, if any, are likely to stop the quantitative measurements they currently use Reval for—just to have auditors come back later to tell them they need the show the numbers to backup their qualitative assessments of hedge effectiveness. Plus, there are still potential new customers that will be finally coming off short-cut and critical-terms match approaches, he noted.
”We continue to see strong interest in our risk and hedge accounting capabilities and, in fact, see demand increase as we are committed to keep track of any changes to hedge accounting, whether it’s with effectiveness testing or more focus on measuring ineffectiveness and general ledger requirements,” Mr. Okochi said.
Impetus for action
Even a low-risk scenario that erodes the need for Reval’s core functionality, however, creates the impetus for action. Hedge accounting compliance functionality has long been a cornerstone for many a treasurer’s “systems wish list” and the major TMS vendors have been slow to erase functionality gaps in this area relative to Reval.
If Reval is going to ever broaden its functionality to enter the TMS “domain” as its press release states, it needs to do it while its core functionality remains a cornerstone and competitive advantage. To the extent the need for its core functions decline or competitors close the gaps, the less willingness treasurers will have to give Reval the benefit of the doubt that it can integrate and build out new functionality—even if it does so with the acquisition of capable vendor such as ecofinance.