- NEC Corp will purchase fintech software provider Avaloq for $2.2 billion as it expands into financial services.
- The deal will likely benefit both firms in terms of increased revenue gains.
The Japan-based technology giant stated that it’ll acquire Switzerland-based fintech software provider Avaloq from private equity firm Warburg Pincus and other shareholders, per Reuters.
NEC offers digital solutions to global clients cross-sector, including aerospace, telecoms, and finance, and plans to acquire 100% of Avaloq’s shares by April 2021. Avaloq, which offers core banking and centralized data platform solutions to its 150-plus clients, representing approximately $4.5 trillion in client assets, will continue to operate as a separate entity following the completion of the deal.
NEC has been on an acquisition spree as it seeks to maximize profits, and the latest purchase aims to expand its presence in digital finance. NEC has undergone significant restructuring over the last decade, which has involved divesting from less profitable business units, such as its semiconductor and smartphone businesses.
Concurrently, NEC has struck takeover deals of innovative technology firms, including Denmark-based IT company KMD for over $1 billion in 2018 and UK-based public-sector software solution provider Northgate Public Services for over $500 million in 2018. The Avaloq takeover will fuel efforts to drive profitability by deepening NEC’s presence within financial services globally, in conjunction with its existing biometric and blockchain digital finance solutions.
We think the acquisition will fuel sales growth for both companies because it’ll enable NEC to capitalize on financial institutions’ (FIs’) drive to digitize, while Avaloq will reach new FIs in Asia Pacific (APAC).
- FIs have scrambled to digitize their services amid global lockdowns—and acquiring Avaloq’s digital solutions will drive revenue gains for NEC. Avaloq is an industry-leading wealth management vendor in Europe and enjoyed 6% revenue growth in 2019. Its digital finance solutions—which enable wealth managers to drive operational efficiencies and personalize advice given to clients, among other services—will attract further interest from wealth managers as they’re forced to expedite the development of their digital capabilities to meet client demands. Thus, the deal makes sense for NEC as it attempts to push for revenue gains through its digital finance services.
- Avaloq will be able to deepen its presence in APAC through NEC’s established presence in the region. Sales to FIs in APAC has been an important growth vector for Avaloq in recent years—and coming under NEC’s ownership, with its significant client base and brand recognition in the region, will accelerate this growth. At a time when Japanese FIs are accelerating their digitization, this marks a timely opportunity to deepen its presence in Japan and APAC.
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