A new powerhouse in corporate Treasury Systems?
Reval has just acquired FXpress. Is this the birth of a new powerhouse in the corporate treasury systems space?
Reval is known for their high-end solution for hedge accounting delivering to a global market.
FXpress has built a reputation as a solid solution for managing FX exposure, FX hedge transactions and FX hedge accounting, but is really only selling it in the US.
Will such a merger work? It depends on what they are trying to achieve. Both solutions have a competitive advantage in hedge accounting. So their current solutions cover to a large degree the same needs at clients. But they operate in different ends of the price scale.
Reval has a wide-ranging and pricey solution for hedge accounting but sees that the traditional system vendors add more and more hedge accounting functionality thus eating into Reval’s core market. Clients would naturally like to have one system supplier – if the standard system can do the job – and not having a separate system for hedge accounting.
FXpress have their own “problems”. They are very good in the complete process from FX exposure to FX hedge accounting but show weakness in cash management and interest rate instruments.
In my opinion, joining forces cannot solve the problem each of the systems has. In the best case Reval can now claim to have a hedge accounting solution for the lower end of the corporate market that cannot afford Reval’s offering.
It is even more surprising that these two should join up now as Kyriba announced a partnership with FXpress just a few months ago.
Given that Kyriba is strong in cash management – just where FXpress is weak – and quite weak on FX management and hedge accounting – just where FXpress is strong - it would on paper look like a much better complementary fit.
However merging treasury systems is notoriously difficult. Each system has been build with different logic, database structure, technology, and look & feel, which makes it difficult to merge without rewriting the system from the beginning.
Trying to build interfaces between components usually doesn’t work well either. You can still see it is a different system and data often has to be duplicated internally. In the best case it takes years before it will work reasonably well. But users will still be able to see which part came from which system in the look & feel of the system even years later.
So what will Reval get out of the purchase of FXpress?
It will give their sales people a product to sell in the lower end of the corporate treasury market, but this is a crowded place with many players and low margins.
However, at the same time Reval announces that they have secured new funding – maybe these extra funds are for further acquisitions.
Maybe Reval would like to collect more systems in the Financial Supply Chain space just like SunGard has successfully done.
Even though SunGard has a hoarded more than 20 systems that to a large degree have similar functional scope, SunGard has managed to use the client base to cross sell products and to use their worldwide presence to better sell them into other geographical areas.
Is this also the strategy for Reval?
Is this maybe the start of a new powerhouse in corporate treasury?
It is difficult to assess the real reasons behind Reval’s takeover but just to get access to the customer base or technology of FXpress wouldn’t make much sense. And building a new superior product in the corporate treasury market is just too expensive and takes too long. We saw XRT breaking its neck trying.
There must be more behind the takeover than meets the eye.
