A small Irish software operation is about to embark on an aggressive acquisition trail following a new investment partnership with two leading technology and financial players.
International Financial Services (IFS) expects to spend between $20 million (€19 million) and $25 million (€24 million) acquiring a company which will greatly expand its customer base before the end of the year. The funding will come from technology giant, Intel, and Germany's Deutsche Bank, which yesterday took a 14 per cent stake in IFS. Industry sources believe the undisclosed value of the investment to be around £1.5 million, valuing the company at around £10 million.
While the initial cash investment is relatively modest - Mr Ken Coldrick, IFS managing director, said the company "didn't really need the money" - the arrangement is significant because of the positive signals both Intel and Deutsche Bank's support will send to IFS's target market.
The new investors were introduced to IFS by Technology Investment and Underwriting (TIU) after it failed to generate interest among Irish venture capitalists. Intel and Deutsche Bank have already conducted initial due diligence studies on IFS, and Mr Coldrick says they will have first right of refusal when IFS seeks funding for the first of its acquisitions. It is likely Intel and Deutsche Bank will continue to provide equity financing to IFS throughout its acquisition period.
Within the next three to five years, IFS says it plans to raise around $40 million with a view to a stock market flotation which will value the company at between $500 million and $600 million.
IFS is seeking to become a recognised player in the treasury banking industry. It specialises in the provision of automated risk management products for collateralised trading. The software calculates how much collateral a bank client needs to put up before buying a trading position in foreign exchange markets. The advantage to the bank is if the client defaults on a loss, it is already holding the money it is owed.
IFS has developed an electronic commerce version of its product, whereby a bank can provide a suite of services to its customers' desktop through client accounts. The revenue model will operate on a transaction basis, returning between $3 and $5 dollars to IFS each time a transaction is processed. The collateral trading practice, though relatively underdeveloped in Ireland is on the increase, and 40 financial institutions already use IFS's MarginMan product suite. IFS now plans to expand its product range beyond foreign exchange markets, into capital, fixed income and securities and equities markets.
Mr Coldrick and his family hold a 40 per cent stake in IFS, and Delta Partners took a 32 per cent stake following a £750,000 seed capital investment a few years ago. The Intel/Deutsche bank deal has diluted this stake to 26 per cent. Two private investors hold a 10 per cent in the company, while the remaining 10 per cent is shared by IFS's 50 employees.
