New York, NY – According to an article in Traders Magazine earlier this week, institutional brokerage and technology firm, ConvergEx is looking to sell two of its better known properties – order management provider Eze Castle and execution management system RealTick.
Proposed Deal
The proposed transaction, which some say could bring in as much as $1.0 billion, is being marketed by Goldman Sachs. The purpose of the deal would be to provide early investors in ConvergEx a liquidity event that would enable them to cash out at least partially.
Some market participants feel that this deal should draw considerable interest from both financial as well as strategic investors – particularly given Eze Castle’s inclusion in the deal.
The Target Properties
Eze Castle has been one of the cornerstones of ConvergEx since it was merged with the Bank of New York’s brokerage division in 2006 to form BNY ConvergEx Group. This merger was part of the Bank of New York’s strategy to transform their brokerage division into a business that would be less dependent upon commissions. Most analysts say that Eze Castle should be an attractive property as it has approximately 500 hedge fund clients and generates between $65 and $68 million in EBITDA per year.
RealTick, on the other hand is not likely to draw significant demand from buyers on its own due to the slowdown in global trading volume that has hit the brokerage industry in the past few years. RealTick’s EBITDA is between $12 and $15 million a year.
Bad News / Good News
In 2011 ConvergEx marketed an IPO to raise $400. After this deal failed to materialize, the firm promoted a private transaction later in the year. CVC Capital Partners won the auction and initially planned to become the single largest investor in the firm, valuing ConvergEx at $1.9 bln. Unfortunately, this deal also fell through.
The good news about these aborted deals is that most large investors interested in this space have had an opportunity to review the ConvergEx businesses in detail, with some private equity investors put in losing bids of $1.7 bln to $1.8 bln to acquire a piece of the company.
Rationale for the Deal
So why is ConvergEx trying to sell the crown jewels of its operation? We think the reason is that its investors are getting restless given the poor market environment. Clearly, the new deal is the third time in the past sixteen months that ConvergEx has tried to arrange for a liquidity event that would enable investors to cash out either completely, or at least partially.
This is why they are forced to sell off the Eze Castle business as it is one of the few properties that ConvergEx owns that might have significant value. This is also why the firm decided not to include its brokerage operations in a planned sale as it knew it would get very little for this business – particularly in today’s challenging market environment.