The ever-changing TMS landscape
The treasury management system (TMS) market is in flux once again, with mergers, acquisitions and private equity investments reaching fever pitch recently. This article outlines the developments in the TMS market in the last few years and provides some perspective on all these changes.
Can further consolidation in the TMS market be expected? And is bigger always better? In order to answer these questions, we used the Zanders proprietary Treasury Technology Database which has over 1,000 companies in it and as such is the largest independent corporate treasury database relating to technology in the world.
With the recent announcement by GTreasury of their acquisition of Visual Risk, the consolidation activity in the treasury technology space has reached new heights. As the TMS market has gradually evolved, three different types of vendors have emerged: a) TMS big players b) ERP vendors c) independents.
One of the main TMS big players, ION Trading, has bought several TMSs over the past few years and doesn’t show signs of stopping. ION Trading’s journey has its roots in the 2011 acquisition of econfinance, a strong cash management platform, by Reval, which at that time was more focused on risk management.
That marriage was questioned at the time, particularly with regards to how harmonized the two back-end databases would be, but it has proved to be a strong and integrated product. Reval was then acquired by ION in 2016 which at that time had already bought Wall Street Systems and IT2. And it has continued. The latest major acquisition by ION was in February 2018, when it bought OpenLink, one of the main Commodity Risk Management systems.
But ION is not unique in its thirst to consolidate and acquire. Its fellow TMS big player, FIS Global, acquired SunGard in 2015, which also had its own portfolio of multiple TMS products. All of this consolidation is not new as the industry has gone through a couple of these consolidation cycles before, one in the ’98-’99 period and another in the ’05-‘06 as can be seen from the graphic below.
Impact for the corporate treasurer
So what is the impact for the corporate treasurer? One obvious impact is that it takes away choice as the number of vendors shrink and the landscape becomes more and more like a duopoly with a scattering of smaller players. Another impact is that a corporate treasurer should not only consider the current ownership structure of the TMS vendor they are looking to select, but also what the future may bring.
What if the independent vendor is acquired in the future? Similarly, if the TMS that is selected is part of a TMS big player, then the long-term strategy for that system should be considered. Will the product continue to be developed and receive investment in the future or is there a risk that it might be phased out to be consolidated with another system?
But does the ongoing consolidation offer the corporate treasurer anything of value? In the long-run it may well do. General consensus is that the vendors will leverage and gradually conform the functionality between systems, taking the best functionality of each of the stand-alone systems and further developing that and offering a more complete state-of-the art system.
It could also be argued that many of the smaller systems did not or do not have the size required to ensure long-term viability, which is also a downside for corporate treasury, and as such ownership by a larger company with deeper pockets has some benefits.
Importance of softer factors
One direct consequence of the ongoing consolidation is the number of systems that are generally included in a TMS selection. Given the large number of solutions now in the stables of the TMS big players, it’s the vendor and not the client who decide which of their solutions they put forward in a TMS selection. As such, the choice of solution is no longer up to the corporate treasurer, which in some cases leads to solutions not being included in a selection project while these solutions could be considered a very good fit. And it is here, it must be said, where the Independents play to their own individual strengths.
Another consequence of the investments being made in the TMS market is that in particular the systems that service the middle segment, which includes but is not limited to systems such as Bellin, Kyriba, IT2 and Integrity, have converged significantly in terms of functionality offered. As a result, softer factors such as price, service, geographical footprint and long-term strategy have become more and more important when deciding which TMS to select.
A key driver of all this consolidation is the private equity (PE) influence. PE has been part of the TMS development from the early days and it very much continues to be a driver of both consolidation and innovation. An overview of recent PE investment in the TMS market can be seen in the table below:
The key question is how these PE firms are looking to make a return on their investment. So far we have seen that those vendors that have received PE injections have significantly ramped up their marketing and sales efforts.
Originally the independent vendors that still exist today have traditionally had a local focus, which then shifted to a regional and global focus. In order to enter the global stage, significant investments are required. The ultimate goal is of course to lock in as many customers as possible to ensure a steady revenue stream in the future and to provide cross- and up-selling opportunities.
The time between cycles of investment and consolidation in this market is shortening, to the extent that there are no more cycles to speak of as major ownership changes are happening every quarter.
Furthermore, the pace of innovation even in treasury technology is compelling the corporate treasury to become a ‘digital command center’. And for that you need a strong treasury technology partner.