In The News

In a move to bolster its already broad array of financial market data and analytics, Interactive Data Corp. has agreed to buy the assets of the data division of corporate actions vendor Xcitek.

Xcitek is considered the largest provider of North American corporate action information, servicing over 2,000 financial institutions. The New York–based business unit’s services also include cost–basis analysis on securities transactions and notifications on class–action lawsuits.

The buyer and seller have been past allies. Xcitek redistributes feeds on non–U.S. corporate actions from Interactive Data among others, while Interactive Data redistributes feeds on North American corporate actions from Xcitek.

Joe Carvalhido, chief executive officer of Xcitek, said the two companies have had a partnership relationship for more than 20 years. "During that period, we have come to know and respect Interactive Data and its products, people and culture," said Carvalhido, adding his conviction that the combination "is not only the right next step for our people, but also that together we can bring more opportunities, service and value to customers."

Interactive Data, best known for providing static descriptive information, including reference data, on securities as well as end–of–day pricing and valuations on hard–to–price fixed–income and derivative securities, has expanded its product reach over the past few years through a series of acquisitions. It bought Thomson Financial Securities Management in 1999 for $150 million and Merrill Lynch Pricing Service for $48 million in 2002. In February, Interactive Data announced that it was unifying its institutionally oriented brand names, including FT Interactive Data and ComStock, under the single corporate identity.

In the April 4 Xcitek announcement, Bedford, Mass.–based Interactive Data said it expects to close the transaction, which includes the market data business of the target’s XciTax affiliate, within "several weeks." The deal does not include corporate actions software entity XcitekSolutionsPlus or a consulting arm, Xcitek Consulting Services, which will continue to operate as independent entities.

XcitekSolutionsPlus, which will be rebranded XSP, is one of the largest sellers of data–scrubbing and workflow management systems for corporate actions, leveraging the Xcitek data feed. In addition to Xcitek and Interactive Data, XSP has interfaces with Bloomberg, Exchange Data International, Fidelity ActionsXchange, the London Stock Exchange, Reuters Group, Standard & Poor’s, Telekurs and the Canadian and U.S. central securities depositories.

"XSP was fortunate to be born out of the leading provider of corporate actions data solutions, and we have successfully leveraged this expertise to position us as the leading player in the corporate actions automation space," Brendan Farrell, a former managing partner of Xcitek and CEO of the new XSP, said in a prepared statement. He described XSP as being in a position to grow "as a mature organization with a proven, implemented solution supporting over 55 clients globally."

Additional Options

Earlier this year, Xcitek upgraded XSP to deliver not only licensed software, but also a remote, application service provider approach, which Farrell said might be more appealing to large service bureaus or global institutions that want to centralize their corporate actions workflow.

Competition in the market data industry is intense, with Xcitek, a niche specialist, facing off against Interactive Data at times, along with Reuters, Telekurs, Standard & Poor’s and Exchange Data International, among others. "We wanted to select a partner that would complement our business and offer our employees continuity," said Carvalhido, Xcitek data division managing director and one of the company’s co–founders. "We were up against large global entities, and with higher client expectations it became tougher for us to compete."

Reference data, of which corporate actions is a subset, has become a mission–critical component for the timely processing of transactions and to help address regulatory and reporting requirements. Institutions are increasingly centralizing data administration and using reference–data content to support risk management and compliance applications. Descriptive information on securities as well as data on reorganizations is often used to populate repositories and other applications necessary for trade and post–trade processing.

"Interactive Data continues to see growing interest from institutional customers for reference data and related services that are used in both departmental and enterprisewide applications that span the front, middle and back office," said Ray D’Arcy, president of sales, marketing and institutional business development for Interactive Data. "We consider corporate actions to be a key component of reference data and a complementary service for Interactive Data that will allow us to enhance our services."

Handsome Price Tag

Market data experts say that IDC paid a healthy price for the Xcitek data unit, which according to last week’s press release had $9 million in revenues and $7.3 million in operating expenses including depreciation in 2006. (Those figures excluded $800,000 in revenues from Interactive Data businesses and $200,000 in royalties paid to them.)

Interactive Data said that the deal will be "cash–flow positive, but earnings neutral in 2007," and accretive to 2008 earnings due to "planned revenue growth and operational synergies." The "vast majority" of Xcitek’s market data executives are expected to join Interactive Data, according to the latter.

Michael Maxworthy, a partner at New York boutique investment bank Marlin & Associates, which advised Xcitek, described the bidding for the Xcitek business as a "healthy auction with a handful of other suitors." A key reason for Xcitek’s decision to sell, he said, was to benefit from the sales and marketing prowess of Interactive Data, which has some 8,000 clients worldwide.

Howard Barnstone, VP of acquisitions and alliances at Interactive Data, characterized the bidding process, which began last summer, as "competitive." He said that Interactive Data had also reviewed the consulting and software businesses but in the end only went for the data unit as the superior fit.

In a previous restructuring, Xcitek in 2004 merged its XSP software operation with SolutionsPlus in Birmingham, Ala. to create XcitekSolutionsPlus. At that time, Xcitek acquired the intellectual property rights to XSP, which had been jointly owned with SolutionsPlus since 1996.

In his statement, Farrell said: "This is the most exciting time for us yet, as we launch the V5 platform, the next generation in corporate actions automation. V5 incorporates our extensive industry–leading business processes ... with our new SOA [service–oriented architecture], Web services–based technology that facilitates integration across the enterprise, backboned with a more robust and secure, globally scalable architecture."

Interactive Data president and CEO Stuart Clark said that the company’s pricing and reference data business "historically delivered our own corporate actions offerings for non–North American securities while working with Xcitek to augment the corporate actions content on North American securities that we provide to customers." He added that Xcitek’s cost–basis and class–action services are "innovative, highly complementary offerings which are in the early stages of adoption by clients. By bringing Xcitek into our organization, we believe that Interactive Data can extend its global leadership in corporate actions and related information with a broader range of compelling content, a more diverse set of delivery platforms and additional technical expertise and thought leadership."

Interactive Data announced Thursday that Steven Crane, president of its pricing and reference data business, is resigning effective April 13 to join an unnamed company outside the financial information industry as CFO, a role he previously filled for Interactive Data. CEO Clark will temporarily add Crane’s responsibilities to his own.