GA: Growing the Right Way

General Atlantic (GA), a private equity firm, has a history of investing in technology companies, particularly those that serve the capital markets sector. The firm has used its funds and expertise to inject growth capital into key industry players such as Archipelago, Computershare, ETrade, Patni Computing and Risk Metrics. More recently, the firm invested $127 million into Saxo Bank, representing roughly a 25 percent stake in the company. The group can still make headlines as it did last week when it announced that Nymex Holdings has signed a non-binding letter of intent with General Atlantic, by which General Atlantic will invest $135 million for a 10 percent equity stake in Nymex. Florian Wendelstadt, managing director for General Atlantic, recently spoke to DWT about the Saxo investment and some of the drivers that might spur new opportunities.

The main attraction was that, for a technology-driven growth investor, this company meets both of those key targets. It is growing significantly. It's very profitable and it's playing in a very significant market in terms of its size. We have done a lot of work in the area of financial technology in general, particularly in the capital markets area, and that's how we proactively identified the company. They didn't seek out our involvement—we found them. We felt that in addition to the attractive market that they were playing in, they were significantly differentiated over their competitors and had better management than their peers. It was probably one of the few occasions where we felt comfortable that we could tick the three to five key boxes that you want to see in an investment.

I think one of the benefits of GA is that we are a source of capital that, for the right reasons, doesn't hesitate to put in a second or a third round of investment into a company. So, an incremental investment depends on what Saxo needs to do and on the growth plans that we are developing. We think we can, and should, grow the company outside of its current strongholds, and develop more of a presence in Asian and potentially U.S. markets and other markets within Europe. If they need capital to grow, we would be one of the sources, which would mean potentially increasing our investment.

FX is represented as a core area of expertise and business for Saxo bank. But it does already provide other products. One of the benefits is that it provides contracts for difference (CFDs) and fixed-income trading as well. Those are smaller in size but they're also growing faster. So I think in the next couple of years you're probably going to see more of a balance between FX and other products.

We were approached, but weren't interested for a variety of reasons. I think that you made a reference earlier about a lot of interest in buyouts and private equity groups in the financial technology space. I personally wouldn't overestimate it and I certainly wouldn't compare a Saxo type of investment with a SunGard investment. I think they're very different and a SunGard-type deal isn't something that we would be interested in. First, because of size, but also because, personally, I'm not a big believer in having consortia of five, six or seven buy-out groups. In our industry, we're all confident of our capabilities, and having six or seven around a table trying to make decisions—I'm sure it's going to be work.

I think that people really shouldn't read too much into [the SunGard LBO], and shouldn't overestimate this new interest in financial services technology. Because of that deal, the league tables will probably show that financial technology is now this great area to be in. But I wouldn't overestimate that—certainly not from the buy-out houses. For us, it has always has been an interesting area because that's what our expertise is. That's what we've done for many years—and we'll continue to find good investments. We'll bring expertise to bear, and that's why people want to work with us, because we're focused on those particular areas and we have people that are operationally active in this space. By doing deals like Saxo Bank, one deal adds to the next. You build a network and expertise that you can share between companies. So, we can leverage one investment with another. It doesn't mean that we're going to bring them together, but our expertise gets better over time.

I'd rather not but it's fair to say that regulatory change is always something we look at.

With Mifid then, I presume there will be a significant impact on the industry.

I think there will be an impact. At the same time, not every regulatory change will present investment opportunities. For example, you could argue that Basel II would drive spending in risk technologies. But, in the end, it didn't turn out to be a large enough opportunity. Some people might have got some good consulting business out of it, but it wasn't a multi-billion dollar opportunity. Hence, we thought we shouldn't spend too much time on it.